The dollar is raising interest rates, and the yuan is under pressure!
A new currency war has arrived.
UBS warned that the Fed could raise interest rates to 6.5% in 2025. Previously, JPMorgan Chase also warned that the Fed could raise interest rates to 8%. Many people have no concept of this data, and they don't know what impact the US dollar interest rate hike will have on themselves.
We keep talking about currency wars. But if we lose the currency war, what will be the result? If we win the war, what kind of future will we usher in? As everyone knows, in 1998, the financial turmoil swept across Asia, and Thailand, Indonesia, South Korea, Russia, and Hong Kong, China, all suffered major currency crises. With the exception of Hong Kong, China, which withstood the dollar's currency offensive, all other currencies collapsed. Among them, middle-class Russian families went bankrupt almost overnight.
At that time, Russia introduced a total of 23.75 billion US dollars in foreign investment, of which more than 10 billion US dollars poured into Russia in 1997. This money is an idling financial capital that does not enter the Russian real industry. This laid the groundwork for the outbreak of the ruble crisis in advance.
In 1998, Russia's economy fell into the abyss, with a fiscal gap of up to $18 billion, and in order to fill the fiscal hole, Russia was forced to issue foreign debt on a large scale, owing a huge debt of $128 billion, while the total asset value was only $27.7 billion, and the foreign exchange reserves were only $13 billion, about 1/10 of the total foreign debt.
Russia's weak finances simply cannot support the stability of the ruble's exchange rate. There is too much debt owed, too little money is earned, and soon, the Russian debt is at the top, and it will not be able to pay it back. Not only is the principal still not repaid, but the interest cannot be paid, so what should we do? There is no choice but for Russia to default on its debts. First, the domestic debt was directly defaulted and not repaid. Second, suspend the payment of overseas debts. However, the debt will not disappear, it will only be transferred.
If a country cannot afford to pay back, its international credibility will collapse and a large amount of capital will flee. Both overseas and domestic Russian capital fled one after another, selling rubles and exchanging them for dollars and euros. In the end, the Russian government simply announced a one-time depreciation of the ruble by 50%. But this was only the beginning, and in 1998 the ruble depreciated by a factor of 14,000. Because Russia issued a "new ruble", it is mandatory that "1 new ruble" can be exchanged for "1000 old rubles". As soon as this measure was introduced, the Russian people went bankrupt.
This is equivalent to the fact that you originally had 10 million old rubles, and if you exchange them for new ones, you will only have 10,000 left. Add to that the sharp depreciation of the ruble, and your actual wealth purchasing power is only a few hundred dollars. Russian tycoons gave early warning, exchanged rubles for dollars, and after the ruble depreciated sharply, they exchanged dollars for rubles, and bought high-quality Russian assets on a large scale, and most of their wealth was further concentrated in a very small number of people.
The Russian government thought that as long as I devalued the price of my assets enough, foreign capital would return to Russia. But in fact, the dollar and the euro have chosen to wait and see, waiting for the ruble to plummet. Until a moment, the dollar and the euro entered again, looting the wealth accumulated by the Soviet Union for more than half a century in one fell swoop.
In contrast, Hong Kong, China, with the full support of the mainland central government, withstood the pressure and defended the wallets of the Hong Kong people. During the Asian financial crisis of '98, the Hong Kong dollar was almost the only local currency to withstand the US dollar's offensive. Asian currencies such as the Thai baht, the Japanese yen, the South Korean won, and the Indonesian rupiah have completely collapsed, falling into the development trap of medium-sized countries, and slumping. South Korea's banking and finance sector has been hit hard and has been forced to open up equity and bring in US dollar investment.
South Korea faces a situation very similar to that of Russia, with a total debt of $58.3 billion and its own foreign exchange reserves of only $19.7 billion. When the dollar launched an offensive, the won was defenseless, and a large number of South Korean companies' foreign debts were blown up, and they were at risk of bankruptcy. To save the market, the South Korean government does not have enough dollar foreign exchange in its hands to maintain the stability of the exchange rate, so it can only sit back and watch the won plummet and the amount of foreign debt repayment continues to rise. In order to get a $57 billion loan from the International Monetary Fund, the South Korean government was forced to surrender and liberalize financial equity investment, and the dollar capital took advantage of the situation to take a controlling stake in the eight largest Korean banks.
South Korea's Daewoo Group's $6 billion car business was bought by General Motors of the United States for $400 million, the South Korean telecommunications giant was wholly owned by Motorola at a low price, and South Korea's second largest bank was taken by Citibank of the United States and renamed Citibank of South Korea. Samsung Group was also controlled by American capital, and all the people of South Korea became workers of American capital.
Now, with the US dollar raising interest rates strongly, RMB capital will inevitably outflow. In Changsha, some banks have openly sold "dollar deposits", with one-year interest rates of up to 5%. This rate is a risk-free rate, and it is almost impossible to say that it is not very tempting. For example, 10 million yuan is converted into US dollars, which is equivalent to 1.382 million US dollars, which is deposited in a US bank with an annual interest rate of 5%. A year later, the total amount of principal and interest we could get in USD was $1,451,100. The current exchange rate of the renminbi against the US dollar is about 7.23. If the RMB exchange rate against the US dollar falls to 7.4 after one year, it can be exchanged for 10.78 million yuan.
If the Federal Reserve raises interest rates further to 6.5 percent, this income will be even greater, and those with money in their hands can easily earn one million a year. However, wealth does not come out of nowhere. When these billionaires take advantage of the exchange rate and interest of the renminbi and the US dollar to earn excess returns, ordinary people in China are invisibly harvested. Why? Because the renminbi depreciates, purchasing power decreases, and prices may rise further. People who usually support their families on wages have nothing to do, and their wealth is evaporated.
There are two main ways to defend the wealth of the majority of the people:
The first is exchange rate intervention, using the massive US dollar reserves in hand to intervene in the foreign exchange market and safeguard the interests of the people.
The second is to accelerate the export of the renminbi to the sea, bypassing the US dollar, and enhancing the purchasing power of the renminbi. For example, more than 90% of Sino-Russian trade has been settled in RMB. We can buy Russia's huge amount of oil and gas with yuan.
If you lose the currency war, it must be ordinary people who suffer. Winning the currency war may not necessarily achieve wealth appreciation, but at least it can stabilize the money in everyone's pocket and will not disappear out of thin air.
In the captain's view, there are two main Asian countries that are relatively rich and worthy of the United States' harvest, and the ability to resist the dollar is very lacking: one is Japan, and the other is India. In India, in particular, the rupee exchange rate has hit a record low.
In the past, emerging countries, such as Brazil, Argentina, Thailand, Japan, Russia, etc., were targeted by dollar capital after accumulating a certain amount of wealth. In recent years, India's economy has grown rapidly, and it is almost time to harvest the dollar.
For the Chinese, everyone should be sure that if the dollar continues to raise interest rates, everyone will not be happy. The annual debt service interest of the United States has exceeded $1 trillion, which is higher than the annual military spending. U.S. Treasuries are now unsellable, and the U.S. debt crisis could trigger a new round of global financial turmoil.
In this turbulent era, you can win only if you don't seek to be rich and rich!