The US dollar plummeted, and the RMB rose! The Sino-US financial war ushered in

2024-04-04

Recently, a startling piece of news has circulated in the financial circle: the Chinese yuan is quietly on the rise, and the dominance of the US dollar seems to be in jeopardy! What exactly is going on? Let's delve into this thrilling currency drama together.

First, let's talk about the "big brother" of currencies, the US dollar. In March last year, to combat the old adversary of inflation, the Federal Reserve initiated a massive interest rate hike campaign. What was the outcome? The US dollar index skyrocketed like a rocket, jumping from 98 to over 114, a whopping 16% increase! Concurrently, the yuan-to-US dollar exchange rate plummeted from 6.4 to 7.18, devaluing by nearly 12%. It appeared that the position of the US dollar as the "big brother" remained as solid as Mount Tai!

However, the tides of global trends, after a long period of division, inevitably converge, and after a long period of unity, inevitably diverge. The dollar's spring didn't last long before it began to decline. As inflationary pressures in the US eased and economic growth slowed, the Federal Reserve had to halt the interest rate hikes and even started considering rate cuts. By September of this year, the US dollar index had fallen to around 103.

At this juncture, the Chinese yuan began to emerge. The exchange rate gradually stabilized and started to appreciate slowly. By July of this year, the yuan-to-US dollar exchange rate had risen from around 1:7.3 to around 1:7.1. In global payment currencies, the yuan has firmly secured the fourth position, with a share of 4.74%. What does this mean? It means that out of every 100 international payments made globally, approximately 5 are completed in yuan. This figure has set a historical high, and the growth rate of yuan payment amounts is significantly faster than that of other currencies.

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On August 5th, there was a shocking development. In overseas markets such as Hong Kong, the yuan-to-US dollar exchange rate surged dramatically, rising by over 600 points in a single day, reaching a high not seen in nearly eight months. Meanwhile, the yuan traded within China also showed strength, increasing by 765 points in one day. In simple terms, the yuan in your hands suddenly became more valuable!

But what about the "big brother" US dollar? Although it is still the "big brother," its position has begun to waver. In early August, the US dollar index, which measures the strength of the dollar, fell to its lowest point this year, even dropping to 101.30 at one point. The euro and pound sterling exchange rates against the US dollar also reached recent highs.

Moreover, the share of the US dollar in global foreign exchange reserves has also begun to decline, with central banks around the world starting to increase their holdings of other currencies. Last year, the annual gold purchasing demand of global central banks reached 1136 tons, indicating that countries are gradually reducing their dependence on the US dollar.

However, the strengthening of the yuan is not solely due to the weakening of the US dollar. More importantly, international markets' confidence in China's economy is growing. For instance, in July of this year, foreign investors bought $20 billion worth of Chinese bonds, which is nearly one and a half times more than the previous month.

In addition, more and more countries and regions are beginning to use the yuan in international trade and investment. By the end of July this year, the CIPS system, used for cross-border yuan payments, has covered 184 countries and regions worldwide. The yuan is gradually evolving from a regional currency into an international currency with global influence. Although this process is slow, it is steady and sustained.

It sounds like the yuan has become a dark horse, challenging the position of the US dollar. However, we must not be too quick to celebrate. The global economic situation remains complex and full of uncertainties.In the second quarter of this year, China's GDP growth rate fell from 5.3% in the first quarter to 4.7%, which is lower than market expectations. Meanwhile, the U.S. GDP grew by 2.8% during the same period, exceeding market expectations. This complex situation adds more variables to the future direction of the currency market.

Moreover, the outcome of the U.S. presidential election in November this year will not only affect U.S. economic policies but may also have a profound impact on Sino-American relations, thereby affecting the exchange rate trends of the two countries' currencies.

However, the fluctuation of currency exchange rates is a complex process influenced by various factors. Short-term fluctuations do not fully reflect long-term trends. The internationalization of the renminbi still has a long way to go and requires our continued efforts.

Speaking of which, I believe everyone must have many questions in mind. Let's take a look at some of the key points together:

To be honest, this question is like asking if "Xiao Ming can defeat Bruce Lee." Although Xiao Ming has recently practiced a few moves of Tai Chi, to say that he can immediately KO Bruce Lee is a bit far-fetched.

The status of the U.S. dollar as the world's main reserve and settlement currency has been formed over decades. It is backed by the strong economic strength of the United States, the depth and breadth of its financial markets, and the support of global political and military influence. For the renminbi to challenge this position, it may still have a long way to go.

However, the renminbi is advancing step by step. For example, its share in international payments has reached 4.74%. Although this figure may not seem large, it has already surpassed that of the Japanese yen and the British pound. Moreover, an increasing number of countries are beginning to use the renminbi for settlement in bilateral trade, which is undoubtedly a good start.

This question is like asking if "the elephant is getting thinner." From a distance, it seems that the elephant has lost a bit of weight, but upon closer inspection, it remains a colossal creature.

The U.S. Dollar Index has indeed fallen significantly from its high point last year, but it still remains above the 100 level. Moreover, although the proportion of the U.S. dollar in global foreign exchange reserves has declined, it is still as high as around 58%. In comparison, the renminbi's share is only about 2.5%.

So, rather than saying that the U.S. dollar is in decline, it would be more accurate to say that other currencies are slowly catching up. This process may take a long time and is full of uncertainties.This issue is akin to asking, "What impact do the changing clouds in the sky have on us?" While it may seem distant, it is actually closely related to our daily lives.

If the renminbi continues to appreciate, it might be good news for those who enjoy shopping. The same amount of renminbi could be exchanged for more foreign currency, making it potentially cheaper to shop online from abroad or to travel internationally.

However, for export companies, this may not be as favorable. Their products would become relatively more expensive in the international market, which could affect the volume of orders.

For ordinary savers, if the renminbi's internationalization increases, there might be more investment options available. For instance, there could be more foreign assets that can be directly purchased with renminbi.

Nevertheless, these changes will not happen overnight. Currency market shifts are usually slow and gradual, and the impact we ordinary people feel might be subtle and imperceptible.

Speaking of which, I wonder if everyone has been overwhelmed by these financial terms and numbers? In essence, the competition behind currency reflects the contest of national strength.

It's like two powerful players in a game of chess, where every move on the board affects the direction of the entire game. The US dollar wants to maintain its "top dog" status, while the renminbi aims to enter the "first tier," with each side carefully strategizing while also closely monitoring the other's moves.

As for us ordinary people? Instead of constantly watching the exchange rates, it's better to focus on improving our own abilities. Because whether it's the US dollar or the renminbi, in the end, they both serve the economy. The stronger a country's economy, the stronger its currency will naturally be.

So, rather than fantasizing about getting rich by trading foreign exchange, it's better to be down-to-earth, work hard, and enhance our skills and productivity. That's the true way to make our wallets fatter.

Finally, let's conclude this article with a cliché but still interesting analogy. If we compare the global financial market to a large pond, then the US dollar is the big catfish within it, while the renminbi is a carp that is growing.Although the large catfish is still strong, it has begun to feel a hint of fatigue. The young carp, though not yet powerful, is growing at an astonishing rate. As for who will ultimately become the king of the pond, it seems we will have to observe for a while longer.

However, one thing is certain: the waters of this pond have been stirred. What will happen next? Let's wait and see!

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