In the show this is also something that happened, people stopped accepting dollars in forex transactions. That puzzled me, but now that I think of it it makes perfect sense.
One thing that still does not make sense to me is this: at a certain point (in the show) the eurozone artificially instituted and exchange rate of 1.17 to the dollar. Why would they do that? To keep eurozone businesses competitive (like China artificially controlling the value of the yuan)? Any idea?
If you know 1.17 dollars can buy 1 Euro worth of goods/services in the EU then a dollar will fluxuate around 1.17 Euros +/- externalities like transportation cost, market avaliability of the goods/services, arbitraging opportunities, and yadda-yadda. At the same time it, more-or-less, fixes relative labour cost of producing the goods/services which tend to be the largest expense of those goods/services.
Using the Yuan ...
Right now the trans-nationals can "buy" in low cost labour zones (e.g., Mainland China) and "sell" in high cost labour zones (e.g., US) and pocket the difference PLUS the difference (~ 30% of wage rate) in employee cost. A $10/hr worker in the US costs $13 but in China that same worker would only be paid $1.25/hr and total costs of $1.625 with each worker producing the same amount of goods having the same selling price in the US. Stablilizing selling cost of the good at $15 - just for illustration - the profit on the US worker is $2 versus $13.375 profit from the Chinese worker.
In practice it isn't quite as clear cut, and profitable, but the principle is accurate.
What happens is some bright MBA figures they can increase total profit by lowering the cost of the Chinese made goods by a dollar and only make a measly $12.375 per product but make more by increasing market share -- selling more of 'em. Everybody manufacturing the product in China does the same, and the US manufacturer has to follow, or go out of business. But note the US maker has had their profit margin drop a whopping 50%: $1 to $2. The Chinese makers have accepted a (roughly) 8% drop but they are still receiving a huge profit, compared to the US (EU) maker per item.
Again, in practice it isn't quite as clear cut but the principle is accurate.
Eventually the US (or EU) maker have to abandon their workers and move to China or they go out of business.
Fixing the currency ratio stops this - for a while. But the relative "distance" between the high and low labour cost zones will "narrow" over time. How that plays out is uncertain but usually there is movement towards lower wage rates until some sort of parity, however defined and reached, is realized.
