Author: Li Yunfei | Source: Original
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This wave of epidemic has left too many problems for the United States. First, the United States chose to control the market normally, and then used money to destroy the market. As the saying goes, the dollar is making a big splash, and the whole world is cutting leeks.
As a result, the United States released the money until its own inflation hit a 40-year high, and then began to raise interest rates in the US dollar. So far, the US dollar has increased interest rates five times this year, with a total of 300 basis points.
But now the United States is still the world's largest country, and the US dollar is still an international currency. So, the problem in the United States is actually the problem of the whole world.
Due to the continuous interest rate hikes in the US dollar, this has caused the economies of many countries to be severely hit. Especially some small developing countries, due to insufficient foreign exchange reserves, the country has become heavily in debt and even bankruptcy under this round of US dollar interest rate hike.
Let’s first look at a set of data. Now the yen has fallen to 144 against the US dollar, with a depreciation reaching a new low in 24 years. The pound has plummeted to the level of fifty years ago, and now the pound has fallen to around 1.06 against the US dollar. The euro also fell to the 0.99 mark against the US dollar, hitting a new low in 20 years. In addition, there are also the depreciation of the Korean won , rupee, and Turkish lira , which have reached historical lows.
Although the RMB has also fallen to 7.1 against the US dollar. However, the current depreciation of the RMB is only half of the appreciation of the US dollar, and the RMB is still appreciating compared to other currencies. It can be said that under this round of US dollar interest rate hike, the RMB is one of the least affected currencies.
So we can’t help but ask, the United States holds up its sickle and the economies of many countries are frustrated, so why can’t it cut off China? Next is the key point, let's continue to look down.
Let’s first explain the logic of the US dollar hike in harvesting wealth all over the world.
Due to the US dollar interest rate hike, the US dollar capital of other countries fled back to the United States, which in turn led to insufficient domestic demand and imported inflation, and the stock market and housing market face the risk of asset bubble bursting.
Also, due to the interest rate hike of the US dollar, the country's currency depreciates, which will also lead to the country's international debt denominated in US dollars and heavy debt. When the assets of other countries depreciate to a certain extent, the United States will allow the US dollar to flow back to these developing countries and buy the bottom of in asset . This is the usual means for the United States to harvest global wealth.
But why does the American gameplay today not work for China? Here I will talk about two representative countries: one is Japan and the other is China. Both countries have chosen monetary easing policies amid the surge in US dollar interest rates, but the outcomes of the two are completely opposite. Let's compare.
After the bursting of the real estate and stock market bubble in 1989, Japan experienced 20 years of economic stagnation. Japan has also always wanted to make the yen actively depreciate to increase domestic demand and the competitiveness of exported goods. Therefore, under this round of US dollar interest rate hikes, Japan chose a monetary easing policy and actively depreciated the yen to promote the development of the domestic economy. But what about the effect?
Let’s take a look at a set of data: since the outbreak of the epidemic, personal consumption in the United States has increased by 10% compared with before the outbreak, while personal consumption in Japan has decreased by 5% compared with before the outbreak. Despite a record high of 3% in August, Japan's consumer price index rose by only 1.6%, which is still below the Bank of Japan's 2% inflation target, in addition to rising costs of energy and food.
This means that the depreciation of the yen did not promote the development of the Japanese economy, but instead allowed the United States to plunder Japan's wealth without bottom line. Japan now has no choice but to start selling US bond to interfere with the foreign exchange market. This is enough to prove that Japan's choice of monetary easing policy has caused the depreciation of the yen to exceed their expectations.
Let’s talk about China again.
This year, my country has implemented a number of economic stabilization policies, including encouraging the implementation of delayed repayment of principal and interest for small and medium-sized enterprises, individual industrial and commercial households, truck driver loans, and personal housing and consumer loans affected by the epidemic, increasing support for inclusive small and micro loans, continuing to promote a steady decline in actual loan interest rates, improving capital market financing efficiency, and increasing financial institutions' support for infrastructure construction and major projects. To sum up, my country is still implementing a loose monetary policy under the wave of US dollar interest rate hikes.
So let’s take a look at the depreciation of the RMB against the US dollar? Now the RMB exchange rate against the US dollar has only reached around 7.1, and the RMB exchange rate of is basically stable, which is within our expectations. Moreover, the depreciation of the RMB is only half of the appreciation of the US dollar. Compared with other currencies around the world, the RMB is still appreciating.
It can be said that it is extremely difficult for the US dollar to harvest China's wealth!
Why did Japan and China also adopt monetary easing policies, but the results are completely different?
That's because there is a very famous theorem in modern financial theory , called " Mondale impossible triangle". In other words, the independence of the monetary policy of a country, the stability of the exchange rate of , and the free flow of capital cannot exist at the same time. At most, two of them can only be selected. Independent monetary policy refers to a country that can adjust its currency according to its own ideas, such as printing money, raising interest rates, or cutting interest rates.
In the development of Japan in recent decades, due to the stagnation of the economy, they hope that foreign capital will invest in Japan, thereby driving the development of the domestic economy. Therefore, they adopted the independence of monetary policy and the free liquidity of capital, and abandoned the policy of exchange rate stability. my country, on the other hand, adopted the independence of monetary policy and the stability of exchange rate, and abandoned the policy of free liquidity of capital.
In terms of free capital flow, my country has a very strict foreign exchange management mechanism. Take individuals for example. Each person can only exchange for up to 50,000 US dollars a year. If it exceeds 50,000 US dollars, relevant proofs are required to submit to the bank. If it is used for projects such as traveling abroad, seeing a doctor abroad, paying tuition fees to children, you can continue to exchange for US dollars by submitting relevant certificates. If you go abroad to invest in financial management, buy a house, etc., you will be subject to strict control, with the purpose of not allowing capital to flee. It is easy to come in and go out, but how can the RMB exchange rate fluctuate under such circumstances?
This is why the RMB and Japan have adopted monetary easing policies under the wave of interest rate hikes in the US dollar, but have achieved completely different results.
At this time, some people will say that my country has abandoned the free liquidity of capital. Will this not curb foreign capital from entering the Chinese market? According to the current international situation, not only did they not curb their entry into the Chinese market, but instead increased their attractiveness to the Chinese market.
Since this year, due to the conflict between Russia and Ukraine, Europe has suffered a serious shortage of gas, and coupled with the destruction of the Nord Stream pipeline, Europe has completely lost hope, worried about energy shortages and high prices.
Since this year, a large number of European companies have come to China to invest and build factories despite the opposition of their country. German giant BASF plans to add an additional 10 billion euros in China. In addition, cutting-edge manufacturing companies such as Volkswagen, BMW , Airbus , and Rolls-Royce have also placed heavy bets in China. Since this year, Europe's investment in China has risen by as much as 120%.
For capital, more foreign capital has become their safest safe-haven asset due to the unstable international situation.
Of course, all this is due to China's huge economic scale, strong physical foundation, and the improvement of the international status of the RMB.This can also reflect my country's firm confidence in the long-term improvement of the financial market, and it is also a manifestation of foreign capital's optimism for the Chinese market.
Author: Li Yunfei, founder of a well-known Internet company and CEO of a large food chain company. He has been engaged in the Internet and physical chain industry for 16 years. He has been reported continuously by well-known media platforms such as Sohu.com, NetEase Finance, Tencent , Phoenix.com , Zhongxun.com , Baidu and other well-known media platforms. He is good at financial knowledge analysis and entrepreneurial guidance!
