This year, the Federal Reserve has raised interest rates 25 times, totaling 300 basis points, which is regarded as the most radical monetary tightening action since 1990, causing turmoil in global financial markets.
On the one hand, the US dollar ushered in a surge - on the 26th, the dollar index once broke through 114.69, a new high since May 2002. It has fallen slightly since then, but remains at a high level.
On the other hand, non-US currencies have depreciated significantly. On the 22nd, the exchange rate of the yen to the US dollar fell from 115 yen to 1 US dollar at the beginning of the year, breaking a 24-year low. On the 28th, the euro expanded its decline against the US dollar, falling to a 20-year low of 0.9536.
On the same day, the pound pound against the US dollar still hovered around the low point of 1.06. Former U.S. Treasury Secretary Summers warned that the pound will soon fall below 1 euro and 1 dollar. The British " Financial Times " pointed out that the UK's judgment on the economic situation has shifted from the possibility of a recession in the future to how serious it can be.
21, Federal Reserve Chairman Powell said that he would continue to raise interest rates until inflation eases. Source: Visual China
China in San Francisco , former economic and commercial counselor of the New York Consulate General, person Chongyang senior researcher He Weiwen said in an exclusive interview with Chang'an Street Governor that the United States abused "dollar hegemony" using monetary policy and exchange rate as a tool, which had a destructive impact on a global scale and increased the risk of global recession.
Strong US dollar hurts others and himself
The strong US dollar's sharp drop in other currencies, which also directly contributed to the recession of the United States.
He Weiwen pointed out that at a time when the worst inflation in the United States in 40 years is still high and the Federal Reserve has no choice but to raise interest rates continuously. The direct result is the surge in the US dollar, forcing the European Central Bank, the United Kingdom, Japan and other countries to follow the interest rate hikes, but the interest rate spread is still lower than that of the United States, causing funds to flow back to the United States, and imported inflation in various countries is becoming more and more severe. Not only will developed economies not escape the hidden danger of recession, but many developing countries in will also be affected, posing lasting damage to their economies.
The United States itself cannot escape the impact. The world's three major rating agencies Fitch recently lowered the U.S. growth rate in 2023 from 1.5% to 0.5%, and believes that the 0.5% growth of the U.S. economy in 2023 is enough to meet the slight recession standard.
Australian media "Dialogue" News Network (The Conversation) pointed out that the U.S. trade deficit has reached nearly one trillion US dollars per year. As the dollar strengthens, other countries will reduce their purchases of US products, and the U.S. trade deficit will further widen.
The most common economic policy to prevent the expansion of the trade deficit is to impose tariffs on imported goods, set quotas or other barriers, which will also cause other countries to retaliate against the US trade protectionism .
Allies suffered a "back stab"
The strength of the US dollar will also increase the economic and political advantages of the United States over its allies.
He Weiwen pointed out that according to the nominal GDP calculated in US dollars, in 2021, the nominal GDP of the United States is 23 trillion, EU is 17 trillion, and Japan is 5 trillion, which means the United States is equal to the EU and Japan.
This year, the nominal GDP of the United States may reach 25 trillion yuan, but due to exchange rate reasons, the EU's nominal GDP this year is only 14 trillion yuan, Japan is only 4 trillion yuan, and Europe and Japan are only 18 trillion yuan in total, not only lagging behind the United States, but the gap is also widening.
Moreover, due to the conflict between Russia and Ukraine, Europe has fallen into an energy crisis and inflation remains high. The United States has benefited and gained greater political advantages, and the geopolitical consequences it has brought are worth noting.
More countries may face a new "lost decade"
The strength of the US dollar will also cause debt crises in a large number of developing countries, especially low-income countries.
In the 1980s, while then chairman of the Federal Reserve, Paul Volker, pushed up the dollar with a strong interest rate hike, the debt crisis in Latin America completely broke out, and Latin America fell into a "lost decade." In the mid-1990s, the Federal Reserve raised interest rates again, prompting the debt crisis in Mexico and the Asian financial crisis.
He Weiwen quoted the analysis of the International Financial Association, saying that 38 countries have fallen into or faced debt crisis this year, the most in 30 years. With high inflation and recession risks paralleling, it is also difficult for these countries to escape the debt crisis, and it is likely that a considerable number of developing countries will face a new "lost decade".
The statement of "RMB depreciation" is not scientific
The fluctuations in the international financial market have also had an impact on the RMB exchange rate, which once caused the market's concerns about "RMB depreciation".
He Weiwen pointed out that the so-called "renminbi depreciation" is actually not scientific, because the RMB is only depreciating the US dollar, and the US dollar is not the only criterion for measuring the exchange rate level of the RMB. It should also refer to the changes in the weighted average exchange rate of the RMB against a basket of foreign currencies , the actual effective exchange rate index of of the Bank for International Settlements , and the International Monetary Fund Special Drawing Rights (SDR) Exchange Rate Index .
htmlThe weighted average exchange rate index of RMB against a basket of currencies on September 15 was 102.1, and on December 31 last year it was 102.47, down only 0.37 points, basically stable. On the same day, the actual effective exchange rate index of the RMB at the Bank for International Settlements was 107.46, 106.66 on December 31 last year, an increase of 0.8 points; the exchange rate of the RMB International Monetary Fund's Special Drawing Rights was 99.88, and on December 31 last year, an increase of 100.34 on December 31 last year, a decrease of only 0.46 points.
"From the scientific scale of the three major indexes, the RMB exchange rate is quite stable, and there must be a basic concept and confidence in this." He Weiwen said that the trend of the RMB exchange rate mainly depends on the fundamentals of China's economy. China's current inflation rate is low. As long as the economy market stabilizes, keeps the economy running within a reasonable range, and promotes a sustained and stable recovery, it can stand at the forefront without fear of storms.
html National Foreign Exchange Market Self-Discipline Mechanism Television Conference held on September 27 pointed out that since this year, the RMB exchange rate has remained basically stable at a reasonable equilibrium level. CFETS RMB exchange rate index is basically the same as at the end of 2021. The RMB exchange rate against the US dollar depreciated, but the depreciation was only half of the appreciation of the US dollar during the same period; the RMB appreciated significantly against the euro, pound and yen, and is one of the few strong currencies in the world at present.
