Early this morning, the Federal Reserve raised interest rates again, but unexpectedly, the US dollar index fell once more, while the exchange rate of the Chinese yuan surged significantly.
The interest rate hike by the US dollar is a key step in the US's strategy to complete the harvesting of wealth from other countries. However, it seems that the last two interest rate hikes have had the opposite effect, with the Chinese yuan rising sharply against the trend and returning to within 7.0.
Moreover, the US's hope to export inflation and shift it elsewhere, at least in China, is not feasible.
01. Failed Strategy
Over the past few decades, as the US dollar has continuously consolidated its hegemonic status, it has gradually formed a very refined pattern of wealth harvesting.
Starting from March of this year, the Federal Reserve initiated an interest rate hike, which is an important step in this strategy.
Please do not think that raising interest rates is just to control inflation; in fact, it is not. We can refute this idea from both positive and negative aspects.
If raising interest rates was only to control inflation, then last year when US inflation was already very high, there was no rate hike; if raising interest rates was to control inflation, then now that rates have been raised by 425 basis points, inflation has not significantly decreased.
We can find more reasons for this. The current inflation rate is over 7%, and we can still explain the reason for raising interest rates, but when we look back at the previous interest rate hikes by the Federal Reserve, it seems that inflation at the time was only 2% to 3%. Why was there a rate hike then?
In fact, the real reason for the US to raise interest rates is to export inflation abroad, shift the economic crisis, and force other currencies to devalue, thereby increasing the purchasing power of the US dollar.If these outcomes were to materialize, the US dollar could effortlessly reap the wealth of other nations.
However, it appears that the US dollar's strategic positioning has not been successful, and the United States is powerless in this regard.
02, Renminbi Surges by Over 4000 Basis Points
In early November, the Federal Reserve raised interest rates by 75 basis points, but the exchange rate of the renminbi did not fall but instead rose after that.
At its lowest, the renminbi exchange rate was 7.35, but after the Federal Reserve's rate hike, it initiated a rapid increase. On November 4th, the offshore exchange rate of the renminbi against the US dollar even rose by more than 1550 basis points in a single day. After November 10th, the renminbi's exchange rate also continued to rise for three consecutive trading days, accumulating an increase of no more than 2000 basis points.
It is evident that the Federal Reserve's rate hike in November did not cause the renminbi to fall; instead, the renminbi experienced a counterintuitive rise.
This time around, the situation is very similar.
From late November to early December, the renminbi has already completed a significant increase and has recaptured the 7.0 threshold. Yesterday, after the Federal Reserve announced another 50 basis point rate hike, the offshore exchange rate of the renminbi rose by another 200 basis points.
If we look at the period when the Federal Reserve raised rates by a cumulative total of 125 basis points, we will find that the exchange rate of the renminbi has risen from its lowest point of 6.35 to the current 6.94, with an increase of over 4000 basis points.
03, Different from Previous YearsNot only has the US dollar not been successful in the exchange rate, it has also failed in transferring inflation.
At present, the inflation in the United States is still at a high level in the past forty years. Although there has been a certain decline compared to before, it is still nearly the highest in the past forty years compared to before 2021.
On the contrary, we see that China's inflation has been fluctuating around 2%, which is the appropriate inflation that economists around the world can accept. It can avoid deflation and excessive price increases. A 2% inflation level is the most favorable inflation environment for China's economic development.
With more and more economic policies being implemented, I believe that China's economy will develop significantly in 2023. On the contrary, the United States in 2023 may enter a deep recession due to continuous interest rate hikes.