Chapter 11: Surprising Turn of Events

Upon hearing Wang Ye's question, Li Gang, who was puffing away on his cigarette, nodded and explained:

"Yes, the foreign exchange task."

"Since the summer two years ago, in response to the central government's call, our Luqi Province has launched a vigorous foreign exchange creation activity covering all sectors across the province, giving rise to the foreign exchange task."

"Adhering to the principles of 'self-initiative, active exploration, subjective initiative, and contributing to the country's foreign exchange creation'."

"The foreign exchange task was not imposed forcibly but rather allowed each state-owned enterprise within the province to make voluntary choices. So, the province set three levels of foreign exchange tasks: ten thousand dollars, fifty thousand dollars, and a hundred thousand dollars."

"Of course, regardless of the amount of foreign exchange created, even if it's just one dollar, the provincial and municipal finances will provide corresponding subsidies based on the market exchange rate of foreign exchange. However, if these three numerical targets are achieved, there will be additional rewards."

Li Gang's voice echoed in Wang Ye's ears as he unconsciously pulled out his own Hongmei cigarette, lit it, took a deep drag, and countless memories related to foreign exchange creation and foreign exchange tasks came to mind.

Foreign exchange, in essence, refers to the US dollar. From a national perspective, there is another term called foreign exchange reserves.

But essentially, foreign exchange refers to an "international currency," and over the past few decades and the coming half-century, the US, as the world's strongest military and economic power, has made its currency the international currency.

As an "international currency," the main function of foreign exchange is international trade.

In simple terms, if Huaxia wants to purchase goods from other countries, it needs money to make the purchase. However, the currency of Huaxia itself is not recognized or accepted by foreigners. In such a situation, to facilitate the transaction, either the parties must resort to the most primitive form of barter trade or find a currency that both countries recognize.

In the international scenario, the US dollar has naturally become the obvious choice.

But once the currency is determined, theoretically, the transaction between the two parties can proceed normally. Then the second problem arises: what if Huaxia, as the buyer, doesn't have US dollars?

After all, Huaxia prints its own currency, the Renminbi, and doesn't have US dollars.

To solve this problem, there are essentially three methods:

The first method is to exchange Renminbi for US dollars, but under current international circumstances, this is not feasible because the international community does not recognize Huaxia's economy, and consequently, its currency.

The second method is borrowing, which means borrowing some US dollars from a country that has them. However, currently, this method is also not feasible because no country is willing to lend money to Huaxia.

The third method, of course, is exportation of goods, selling goods on the international market, earning US dollars from other countries, and then using them for consumption. This way, there are no problems.

In this whole process,

Huaxia's earning of US dollars through the export of goods is called foreign exchange creation, and these US dollars are stored in a special international account, known as Huaxia's foreign exchange reserves.

In fact,

Before the reform and opening up, Huaxia's commercial exchanges with the world were not extensive. The few exchanges of goods and commodities, many of which were provided as aid to third world countries in Asia, Africa, and Latin America, did not involve foreign exchange.

So before the reform and opening up, Huaxia hardly had any foreign exchange reserves, just one or two hundred million US dollars.

But with the advancement of the reform and opening up, Huaxia's contacts and exchanges with the world increased, and the demand for foreign exchange became greater. For example, do officials going abroad on official business need foreign exchange? Does the country, with its backward technology, need foreign exchange to purchase foreign technology and equipment?

With the increase in international contact,

The demand for foreign exchange has become increasingly insufficient, and thus the state proposed the creation of foreign exchange.

Two years ago, Huaxia's foreign exchange reserves finally reached one billion US dollars, and last year, they soared to 2.7 billion US dollars. But even so, for the foreign exchange needed in Huaxia's economic construction, it was still like a drop in the bucket.

As for the "market exchange rate of foreign exchange" mentioned by Li Gang, it's another issue.

Because currently, Huaxia has just opened up, the market is in a dual-track economy, so the exchange rate between Renminbi and US dollars is determined by the state financial department through administrative documents, roughly around 1.2 to 1.3:1.

But in fact, this ratio does not conform to the law of the market economy because the purchasing power gap between the two currencies is huge. In reality, with just one US dollar in hand, you can exchange it for at least twelve to thirteen Renminbi on the black market!

And this ratio is what Li Gang mentioned as the "market exchange rate of foreign exchange"!

Thinking of this,

Wang Ye stubbed out the cigarette, looked at Li Gang with a smile, and said:

"Director Li, I remember you mentioned earlier."

"Either the Laiyang Iron and Steel Plant accepts the foreign exchange task, or they can only receive subsidies at 50% of last year's level. Isn't this considered forced allocation?"

To Wang Ye's question, Director Li shook his head with a sigh and a bitter smile:

"Does it matter? What's the point?"

"Take the Laiyang Iron and Steel Plant, for example. Their production tasks this year are extremely low. They're lucky to receive subsidies at 50% of last year's level, and that's because I, Old Li, am soft-hearted. If we go by the plan at the Industrial Bureau meeting, they'll only get thirty to forty percent!"

"And even if we forcibly allocate, how many factories in our Yuntai City can really create foreign exchange?"

"If we don't give them this pressure, these factories would rather eat porridge. They wouldn't even think about creating foreign exchange. After all, according to them, who cares about what we produce here? What iron pots, plows, and water pipes. Do foreigners even care?"

"Wang Ye, you may not know."

"In our Yuntai City, the unit that created the most foreign exchange last year was the Third Food Factory!"

"Guess what they earned foreign exchange by selling?"

"Vegetables! The women of the whole factory were digging vegetables all over the mountains! They were the things we ate when we didn't have any food, and then after rough processing, they were sold to the Japanese, who apparently like to eat those things."

"For a whole year, they created seventy thousand US dollars in foreign exchange."

As Li Gang spoke, he seemed quite enthusiastic. He lit another cigarette, waved his hand at Wang Ye, and said:

"Let's not talk about these troubling matters, Wang Ye."

"Your factory is a designated trial point for the military-civilian transformation reform, so we locals must cooperate. But the reality is this. If you really insist on it, I can arrange some production tasks for you, based on the equipment in your factory, it will be nothing more than iron pots, agricultural tools, and water pipes."

"The key is, you still have to think of ways from the perspective of the market economy. If it's really impossible, I can approve a trip for you. You can go down south and take a look, at cities like Pengcheng and Yangcheng. Those are the cities at the forefront of reform and opening up. Go and learn! See if there are any products you can develop or if you can secure some orders."

"If you can learn something or even secure orders, we can provide you with the production materials in advance."

"That's all I can do..."

With Li Gang's voice, the eyes of everyone in the meeting room dimmed. They had all heard stories about how Pengcheng was overflowing with money. They all knew that the south was opening up faster and the economy was more developed. But if they could easily learn or even secure orders, then most of the state-owned factories in the entire Luqi Province wouldn't be on the verge of halting production and facing operational difficulties!

"Director Li, can't we discuss this a bit more..."

Sitting there smoking his pipe, the one-armed Zhao Laohan hesitated and asked, but before he could finish his sentence, Wang Ye suddenly cleared his throat and said:

"Director Li, we'll take on the foreign exchange task."

"The one for a hundred thousand dollars!"

As soon as these words were spoken, everyone in the meeting room was stunned!