This round of RMB depreciation and the appreciation of the US dollar is purely caused by the differences in monetary policies between China and the United States. The accelerated depreciation of the RMB has a lot to do with the continued strengthening of the US dollar.
Qingliu said before that the depreciation of the RMB will continue for a period of time. Considering that the US dollar will raise interest rates many times in the future, it is highly likely that the RMB will continue to depreciate in the future.
In fact, the United States has passed the "dollar tide", which is often called harvesting, which has been staged many times in history. The United States is not China. When encountering problems, China must find a way to solve them, whether from the perspective of national character or objective reality, but the United States does not need them. The United States is the world hegemon. It can completely pass on the problem and the price. As long as it can earn the difference, the crisis will naturally be solved.
If other countries cannot withstand, under such a surging impact, many countries will definitely go bankrupt, a large number of high-quality assets will fall into the hands of the United States at low prices, and more industries, talents, and technologies will flow into the United States under the driving force of capital, which will provide a strong foundation for the United States to survive the crisis and recover and even prosper.
If there is a country that is large enough to solve its own problems at this time, it may not be a historical opportunity. Take China for example. Continuous interest rate hikes have indeed led to the appreciation of the US dollar against the RMB, but this is actually conducive to us striving for more foreign investment in China.
Everyone will ask: What is the impact of the depreciation of the RMB on us? Why does The Federal Reserve raise interest rates , US bonds strengthen, US dollar appreciates, and the RMB depreciates? We don’t need US dollars, just wait for some questions.
Today's answer will highlight the reasons and subsequent impacts behind the depreciation of the RMB. If you think it is said well, remember to have three consecutive clicks.
Here we first spread the definition and difference of onshore and offshore RMB:
Offshore RMB refers to the business where both parties to the transaction are non-residents, and the business is called offshore financial business. Onshore RMB refers to the RMB circulating and stored in mainland China. The difference between the offshore RMB and the onshore RMB is as follows:
. Compared with the onshore RMB, the RMB exchange rate of offshore market has a stronger response to economic data. When the economic data exceeds expectations, exchange rate will make adjustments in the market as soon as possible.
2. The onshore RMB has been developing for a long time and is large in scale, but it has more supervision. The offshore RMB has a short development time and a small scale, but has fewer restrictions.
3. The impact of the international financial market, especially changes in risk appetite among overseas investors, has a great impact on the RMB exchange rate in the offshore market, because it is more closely linked to the international financial market, while the onshore market is less sensitive to these impacts due to the supervision.
At the morning of September 28, data from the China Foreign Exchange Trading Center showed that the central price of the RMB against the US dollar was 7.1107, a 385 basis point lower, hitting a new low since June 30, 2020. At the same time, the offshore RMB fell below the 7.2 mark against the US dollar, falling nearly 300 points in the day.
Image source: China Foreign Exchange Trading Center website
Beijing time on Thursday, September 22, the Federal Reserve announced its September interest rate resolution as scheduled, raising interest rates by 75 basis points again. This is the fifth rate hike of the Federal Reserve this year, and it is the third consecutive sharp rate hike of 75 basis points. The target range of the federal funds rate has risen to 3%-3.25%. has raised a total of 300 basis points this year, setting the record for the fastest rate hike of the Federal Reserve in more than 40 years.
After the Fed's interest rate resolution was released, the dollar index hit a high of 111.73, continuing to hit a new high since 2002, non-US currencies generally fell, the euro exchange rate against the US dollar continued to hit a new low since October 2002, the pound exchange rate against the US dollar hit a new low in 37 years, and the Australian dollar hit a new low since May 2020.
This wave is not so much a depreciation of the RMB, but rather a decline in the US dollar, which is more like an appreciation of the US dollar than expected. Compared with other currencies, the exchange rate of the RMB has actually appreciated. Because only the US dollar appreciated significantly, others such as the euro, the yen and the pound all fell a lot, and the game hit a record low.
The following figure shows the trend of the US dollar against the RMB in the past three years. The rise in the curve indicates the depreciation of the RMB, and the decline indicates the appreciation of the RMB. Since April this year, the RMB has depreciated from around 6.3 to nearly 7:
Behind the weakness of the RMB against the US dollar is the continued rise of the US dollar index, which continues to hit a 20-year high. This time, the RMB exchange rate depreciation began in March, and the trigger was that the US dollar index continued to rise.
2. The reasons for the depreciation of the RMB, Qingliu has carefully analyzed it before, and I will post it here again: RMB depreciation of 7.5% in four months, what factors are affected? How do you view the future trend of the RMB?
Generally speaking, the exchange rate of a country is affected by the following three factors:
, domestic and foreign monetary policies (ratio issues, both inside and outside, must be viewed)
, domestic economic fundamentals
In addition, there is also an impossible triangle , which refers to a country that cannot achieve capital flow freedom at the same time, the independence of monetary policy and the stability of exchange rate. In other words, a country can only have two of them, but not three at the same time.
For example, to maintain free flow of capital and controllable currency issuance , it is necessary to adopt a floating exchange rate system to make the currency sometimes high and sometimes low; to maintain stable exchange rate and independent monetary policy, capital controls have to be implemented so that money cannot be easily in and out; if you want to stabilize the value of the currency and want to flow freely, you must give up the independence of monetary policy and let others decide the total amount of money in the market for you.
It is obvious that my country has abandoned the last item. The first two items are part of the country's monetary sovereignty. In fact, as long as capital can flow freely across borders, it is impossible to maintain an independent monetary policy.
Because China implements foreign exchange control . For individuals, if you sell your property and get 5 million yuan and think of the bank for US dollars, you can't exchange it for US$700,000, and you can only exchange it for US$50,000 at most for US$50,000.
Because according to current laws, the maximum exchange rate per person per year is US$50,000.
or even, when currency confrontation is fierce, the bank will also review the purpose and purpose of your foreign exchange exchange. If you can't explain it clearly, you may not even be able to exchange for $50,000.
For enterprises, if you want to exchange RMB for US dollars for export, you need to conduct ODI filing review. The so-called ODI registration refers to the registration of outward direct investment in . The main purpose is to review the purpose and purpose of corporate foreign exchange exchange. Only real foreign investment can be exchanged for US dollars.
In short, if you want to trade RMB for US dollars and trade exchange rate difference , it will basically not work under current laws and policies. This is also one of the reasons why the United States often criticizes China for being a "free market". The United States hopes that China will completely liberalize the exchange rate market and financial market, eliminate all controls in the investment field, and become the complete "free market" that the United States calls, but China is reluctant for a long time.
The fundamental factor of the depreciation of the RMB is that the interest rate spread between China and the United States continues to expand, and this is mainly due to the mismatch between China and the United States monetary policies. Qingliu will analyze it next:
Many people are asking why the yen suddenly plummeted and depreciated. The main reason is that the US dollar has been too strong recently, and it has been 101 points there, and the yield on US bonds continues to rise, which has caused many safe-haven assets to return to the United States.
First of all, everyone should be clear that the main reason why the Fed rate hike can have an impact on us is because the hegemony of the US dollar, the world's largest reserve currency and the world's public goods is here.
I'm here in Qingliu Cai Ji: What exactly is the Federal Reserve's interest rate hike, why is it necessary to raise interest rates, and what impact will the interest rate hike have? This article explains it clearly!
After the establishment of the " Bretton Woods Agreement " in 1944, the US dollar was directly pegged to gold and gradually replaced the pound as an international reserve currency. In 1971, the then-US President Nixon announced that the US dollar was no longer pegged to gold, the Bretton Woods system collapsed, and the global monetary system entered the era of sovereign credit currency.
Nevertheless, the US dollar is then the world's number one reserve currency, with the world's largest currency network, used for 40-50% of global trade settlement and international credit.
With its reserve currency status, the United States can get away with its monetary policy and increase its debt to a level that is disastrous for other countries.
After World War II , when the US dollar became a reserve currency, US Treasury bonds also had the attributes of international public goods, and the United States was the leader of the global economy. Under the endorsement of national credit, global central banks saved US dollars and invested in US bonds. US bonds became an extension of global savings, with extremely high liquidity and security.
Therefore, the 10-year U.S. Treasury yield is usually regarded as a risk-free rate of return, which makes it have a wide influence, also known as the anchor of global asset pricing.
), many derivative products around the world are designed based on the yield of ten years of US bonds. Therefore, changes in US Treasury yields over the past decade will affect the flow of global funds.
2), especially the yield of ten-year US bonds as mortgage loans and benchmark interest rate for national and local bonds. The continuous increase in yields means that the increase in the borrowing costs of enterprises will affect the experience activities of American companies.
3), theoretically, the yield on the US 10-year Treasury bond is often used as the risk-free discount rate for stock asset valuation. The rise in US Treasury bond interest rates means that the valuation will decline, which is also one of the reasons why the recent rise in US Treasury yields has caused panic in the stock market.
The Federal Reserve's September interest rate meeting further strengthened its "eagle" tone, which greatly exceeded market expectations. Because the rate hike has not slowed down, the dot chart shows that interest rates will rise further and will remain high for a long time. It is not ruled out that interest rates will continue to rise in 2023.
In fact, the Fed's frequent interest rate hikes this year have not fundamentally solved the essential problems of its domestic economy. The means of "rate hikes" are more like a "sharp medicine" to quench thirst. This move will also bring more pain. The US economy may enter a recession in early 2023, and the US stock market and bond market are still a long way from the "market bottom".
The consequence of the Federal Reserve's sharp interest rate hike is that the global economy will experience a world-class economic recession due to this impact. The capital reflux brought about by interest rate hikes is also causing other economies in the world to face different degrees of tests. Under pressures such as intensifying inflation and depreciating the local currency of , many countries have to follow the pace of the Federal Reserve and raise interest rates.
Since the beginning of this year, the central bank of about 90 economies has raised interest rates, half of which have recorded a single increase of at least 75 basis points. This also set a record for the widest austerity of global monetary policy in 15 years.
Before and after the Federal Reserve's interest rate hike, the central banks of Sweden , Switzerland , the United Kingdom and South Africa all raised interest rates sharply. Among them, the Swiss National Bank's interest rate hike marks the end of the 10-year negative interest rate era in Europe, and Japan has become the only major economy to maintain a negative interest rate policy.
Qingliu Caiji: What exactly is the Federal Reserve's interest rate hike, why should it raise interest rates, and what impact will the interest rate hike have? This article explains clearly!
Now the whole world is forced to raise interest rates with the United States' pace in order to slow down the depreciation of the currency, because most countries' energy cannot be controlled independently, depreciation means funds fleeing and domestic inflation pressure increases.
There is only one China but it cuts interest rates against the trend. According to official statement, there is room for further interest rate cuts in the future. Compared with the RMB exchange rate, how to stabilize the market of private enterprises and foreign-invested enterprises is our top priority.
Because compared with the United States, China has been very restrained in the past few years. Even in the most difficult years, it has not flooded the market. In the second half of 2020 and 2021, China's economy actually performed very well, and the Chinese people are very confident in the future.
turns in April, a big city was broken. The new crown epidemic seriously affected China's economy and disrupted the rhythm of the entire economy. In the case of a serious economic downturn, problems such as Internet rectification and real estate lanwei brought direct impacts, which seriously affected the confidence of the whole people. The expectations were gone. social financing fell sharply. Social financing fell sharply in July this year, and rebounded in August but was still limited.
In this case, the rich dare not invest, the people dare not consume, everyone is shrinking, and some people want to wait until the assets depreciate further before buying .
For example, major Internet companies, according to statistics, there are more than 2 trillion yuan in cash (or similar assets) on the accounts of the top 10 platforms. There are considerations for wintering and the reasons for shrinking to buy at the bottom.
Therefore, the problem facing China is the problem of insufficient economic vitality, not that there is too much money supply, so we now need to do our best to revitalize the domestic economy. There are actually only a few ways to revitalize the economy:
a, reducing financing costs. , that is, interest rate cuts and tax cuts and fee reductions. The country has made a lot of efforts in this regard. Today alone, Qingliu received calls from three banks asking whether they need a loan.
b, expand the market. For example, domestically establish a unified market, and foreign countries accelerate the process of the "Belt and Road" project, enhance the influence of organizations such as " SCO ", strengthen the construction of ocean-going naval forces, and compete for more markets for Chinese companies.
c, improve the competitiveness of Chinese products. There are many places to start with . The most royal thing is to demand productivity from technology. Either only China has it or China has the lowest cost. For example, new energy (photovoltaics, wind power, automobiles) is typical; or start from the exchange rate and improve the competitiveness of Chinese goods through depreciation.
Overall, China has quite abundant liquidity and its credit level is quite loose. The liquidity is abundant, and the internal performance is that either house prices rise or prices rise.
, China-US Interest rate inversion
The United States raises interest rates, and China cuts interest rates, so that China-US interest rates will form an inverted reversal, because foreign interest rates are raised and domestic interest rates are cut. The theoretical result is that funds naturally flow from China to the United States, leading to the appreciation of the US dollar and the depreciation of the RMB exchange rate.
After the epidemic in 2020, China's 10-year treasury bond yield was at most 250 points higher than that of the United States, which means that 2.5% more is very attractive to overseas investment.
So they entered China one after another, exchanged RMB, bought Chinese government bonds, and collected interest rate spread , so the RMB would be firm, from 7.17 in 2020, the RMB rose to 6.3 RMB appreciated by 12.1%.
is currently a US dollar 10-year Treasury bond yield of 3.992%, and China's 10-year Treasury bond yield of 2.75%. This interest rate difference is a bit large, and capital will definitely flow back to the United States.
In fact, the pressure on the depreciation of the RMB in the first half of the year was actually not very large, because the strong domestic exports helped us earn a large amount of US dollars.However, in the second half of the year, especially in the first half of 2023, as the global economy enters a recession and export orders decrease, you can see it from the China Export Container Freight Index and the Shanghai Export Container Freight Index. Exports have been slowing down recently, and in this way, the dollar revenue will decrease and the pressure on the depreciation of the RMB will continue to increase.
said above that the depreciation of the RMB is actually determined by many factors. The depreciation of the RMB exchange rate is often related to factors such as strong US dollar, weak exports, and sudden outbreaks of the epidemic.
also talks about our response methods, and the central bank releases liquidity by reducing foreign exchange reserves. However, this tool is more about treating the symptoms and slowing down the rate of exchange rate depreciation. If you want to treat the root cause, you must start with the influencing factors mentioned above.
The first factor, the interest rate gap between China and the United States cannot be changed in a short period of time. The Fed cannot stop the interest rate hike, and the domestic market even needs to cut interest rates. The 10-year Treasury bond spread between China and the United States has already inverted, and the inverted may continue in the short term.
The second factor that can be changed is the recovery of the domestic economy and attracting external investment. During the first wave of the epidemic this year, we have introduced a number of measures to support the economy. By June and July, the economy showed signs of recovery. The stock market's reaction was always ahead of economic data, and there was also a wave of market trends in May and June.
Later, there were signs of the second wave of the epidemic, and the stock market also adjusted. Starting from late August, we have introduced a number of measures to support the economy. Can we replicate the effects of the previous wave? I don't know yet.
But now another variable is coming: the European energy crisis and the conflict between Russia and Ukraine escalates, and international capital returns to the United States, which further boosts the strength of US bonds and the US dollar.
. Everyone will ask a question: What exactly does the United States want to do?
First of all, everyone should be clear that the main reason why the Fed rate hike can have an impact on us is because the hegemony of the US dollar, the world's largest reserve currency and the world's public goods is here. The consequences of the Fed's interest rate hikes have basically led to financial crisis
The first time was the Latin American debt crisis, mainly Latin American countries, such as Argentina depreciated by 70%; the second landmark event was the Square Agreement , which brought Japan back; the third time was the Asian financial crisis, which turned Southeast Asia upside down. The fourth time was Internet bubble , and the market value of the entire Nasdaq fell by $5 trillion. The fifth time, subprime mortgage crisis , the sixth time, is now.
In fact, this is not the first time the United States has been doing it. It has been staged many times in history. The United States is not China. When China encounters problems, it must find a way to solve them by itself, whether from the perspective of national character or objective reality.
But the United States does not need it. The United States is the world overlord and can completely pass on the problems and costs. As long as the difference can be earned, the crisis will naturally be solved.
For example, Japan, the Soviet Union, Southeast Asia, etc., or the future Europe? Just like the economy has cycles, the US dollar also has cycles. The methods adopted by the United States are similar:
Step 2: Keep the US dollar low interest rates for a long time, allowing the "cheap" US dollar to flow to the world. Specifically, it can be invested through national projects or US dollar. For example, in the past decade, a large number of US dollar investments poured into China, creating the myth of getting rich in the Internet in China.
Step 2: There are problems in the fundamentals of the US economy and a crisis. Oversupply of the US dollar in the short term, and with the advantage of low interest rates, it accelerates its spillover to the world.
Step 3: Rapid interest rates, attract global US dollar back with higher interest rates, and lead the crisis to the whole world. There must be crises in many countries, leading to asset depreciation.
Step 4: Take advantage of the danger, the US dollar will buy at the bottom at a low price, and even cooperate with interest rate cuts to accelerate the US dollar to flow into the world again.
This is the "dollar tide", which is often called harvest. If you can't stand it, under such a surging impact, many countries will definitely go bankrupt, a large number of high-quality assets will fall into the hands of the United States at low prices, and more industries, talents, and technologies will flow into the United States under the driving force of capital, which will provide a strong foundation for the United States to survive the crisis and recover and even prosper.
Here is a chestnut. In 1988, the Japanese economic crisis, The United States harvested Japan through interest rate hikes. On September 22, 1985, the world's five major economic powers (US, Japan, Germany, Britain and France) reached a "platz agreement" at the Plaza Hotel in New York.
At that time, the US dollar exchange rate was too high, causing a large trade deficit. For this reason, the United States, which was in trouble, issued a joint statement with four other countries, announcing its involvement in the exchange rate market.
After that, the yen appreciated rapidly. The exchange rate rose from around 1 dollar to 120 yen a year later. Due to the drastic exchange rate changes, assets composed of US Treasury bonds have suffered book losses, so a large amount of funds have entered the Japanese domestic market in order to avoid the exchange rate risk .
At that time, in order to subsidize the export industry that was hit by the appreciation of the yen, the Japanese government began to implement financial easing policies, thus generating excess circulation funds.
yen's massive appreciation, US dollar hot money poured into Japan to push up Japan's housing prices, prices, etc., and then encountered a cycle of interest rate hikes in the United States, with interest rate hikes from 1988.3-1989.5, and the Federal Reserve's benchmark interest rate increased from 6.5% to 9.8125%.
A large amount of US dollars returned to the Federal Reserve, so a large number of Japanese assets were sold and exchanged for US dollars returned to the United States, causing the collapse of the Japanese stock market and real estate market, and the economic overheating and hard landing in an instant. This is US dollar tide . The US dollar was released into other countries and pushed up assets soaring, and then the US dollar shrank, fleeing other countries, causing a large loss of foreign exchange in other countries, triggering a financial crisis.
So, just need to understand some basic principles of economics to expose the "skin" of the Federal Reserve and even the United States, and figure out whether they want to lower inflation or have a different purpose.
The United States holds world hegemony, and of course they have the ability to do so. This is also the general trend of the world today. Many countries are unable to resist. On the one hand, it is because of their small size, and on the other hand, it is internal problems. After all, flies do not bite seamless eggs.
If there is a country that is large enough to solve its own problems at this time, it may not be an opportunity. Take China for example. Continuous interest rate hikes have indeed led to the appreciation of the US dollar against the RMB, but this is actually conducive to us striving for more foreign investment in China. There is no need to worry too much about foreign capital taking advantage at this time.
After all, the most important thing for us now is to activate the domestic economy. Moreover, in recent years, China has closed many channels for capital outflows. Even the virtual currency of such as Bitcoin has been severely cracked down. Foreign capital can come in, but it is not that easy to engage in speculative cash out. #Financial Headlines# #RMB depreciation# #Feder rate hike#
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