"The mainland's economy is growing well, unemployment is low, inflation is low, and investment is pouring in, so why is the ringgit still going down? This is contrary to the economic fundamentals, but no one can explain it clearly. ”
This sentence did not come from confused netizens or small vendor owners, but from Malaysian Prime Minister Anwar Ibrahim, who has a background in economics.
In the past two years, Malaysia's economy has grown strongly, and its foreign trade and employment figures are among the best in ASEAN, but the currency exchange rate has been falling and falling.
Does Prime Minister Anwar really not know why? Of course he does, because he followed up with something that is rarely reported in the Western media: "It's all the blame on the Federal Reserve!"
Malaysia is not alone in the past two years, especially since the beginning of this year, when its currency exchange rate has fallen to record lows.
In mid-April, the U.S. dollar rose above the 1,400 integer mark, creating a new low for the won since November last year, and from a technical point of view, the 14-day RSI indicator of the won was the most oversold since 2011.
This means that if the Bank of Korea does not intervene, the South Korean exchange rate will continue to collapse.
In the past few years, India and Vietnam have seen the strongest growth among the world's large and medium-sized economies, and the countries with the greatest potential to "replace China" in the Western context, but domestic economic growth has not prevented the exchange rate of both currencies from plummeting.
USD/INR rose to 83.54 in mid-April, also breaking through the Indian rupee's extreme of 83.5 in November last year.
At the same time, USD/VND briefly touched 25,463, a record high. The Philippine peso fell to a seven-month low against the dollar.
Among many Asian currencies, the first to withstand the pressure is the rupiah, which has fallen 7% against the dollar since January this year, so the day before yesterday, Indonesia's central bank became the first ASEAN country to "raise interest rates more than expected", and Indonesia's interest rate rose from 6% to 6.25%.
Many people can't help but ask, why did the exchange rate against the United States fall below the historical extreme, after the economic momentum of East Asia and ASEAN countries has been good in recent years?
The first reason is the cliché "Fed rate hikes" factor.
The Fed's current interest rate hike cycle is from March 2022 to May 2023, raising interest rates ten times in 14 months, with each time raising interest rates by 500 basis points.
The extremes of Asian currencies, including the renminbi, against the US dollar almost all came during this period, especially in the fourth quarter of 2022, when interest rates were raised the most.
However, for most of the half year after May 2023, the U.S. interest rate has remained unchanged, so the interest rate hikes in the past two years are only the "environmental factors" that have put Asian currencies under pressure in the past period, and are not the dominant factor for Asian currencies to fall below the extreme value of the U.S. dollar interest rate hike since the beginning of this year.
Since the beginning of this year, the exchange rates of Asian countries have plummeted, and the second reason is the reversal of "U.S. interest rate cut expectations".
It must be admitted that even if you compare organizations in other fields around the world, the Fed is the most successful existence in the world's "expectations management".
After the US CPI showed a significant downward trend at the end of last year, many Fed officials, including Fed Chairman Jerome Powell, expressed their expectations on different occasions to start cutting interest rates in 2024, or even at least three times.
By January this year, it became a consensus around the world to predict that the Federal Reserve would start cutting interest rates in the first half of this year, but it was conservatively expected to start cutting in June, and aggressively believed that it would start cutting in April.
However, in the first quarter of this year, with the release of "last month's economic data" in the middle of each month, the Fed's prediction of cutting interest rates in the first half of this year, and even this year, quickly reversed.
In fact, as of this week's release of the U.S. economic growth data for the first quarter, the converted adult growth rate was only 1.6%, far below market expectations and lower than last year's U.S. growth momentum.
This is the most important indicator of economic stagnation and even crisis in our country, and we must hurry up with a series of stimulus policies.
However, in the Fed's view, the US GDP data has never been the most important indicator, and the Fed is most concerned about only two economic data: the consumption index CPI and the non-farm payrolls.
On April 10, the United States announced that the CPI in March rose by 3.5% year-on-year, an increase of 0.3 percentage points from February, exceeding market expectations.
3.5% is significantly more modest than the inflation figures of more than 7% in the previous two years, but the month-on-month increase and year-on-year expansion have made the Fed realize that the trend of inflation closer to the 2% target has reversed.
In early April, the U.S. non-farm payrolls increased by 303,000 in March, far exceeding market expectations.
The U.S. unemployment rate fell to 3.8% in March, remaining below 4% for 26 consecutive months, the best performance since the 60s of the last century.
The inability to reduce inflation and the larger-than-expected employment data made Fed officials, including Powell, collectively turn dovish in April, postponing interest rate cut expectations.
The Fed's influence on global finance can be seen, it does not need to raise interest rates at all, and can make the exchange rates of dozens of Asian countries fall below record lows just by "creating expectations and then failing expectations".
Half a century ago, former U.S. Treasury Secretary Connelly famously said, "The dollar is our currency, but it's your trouble." "Get the most vivid interpretation.
The third reason for the continuous decline of Asian currencies is the intensification of global risk aversion after the Palestinian-Israeli conflict spread to Iran.
After the outbreak of a new round of the Palestinian-Israeli conflict in October last year, the United States was disgraced in the Middle East, and Israel's massacre of Gaza left the United States isolated in the international community and suffered a serious political loss.
However, at a time when the military hegemony and financial hegemony of the United States have not fallen, Israel bombs the Iranian embassy, and global capital is worried about the extension of the war in the Middle East, and a large amount of capital is still the first choice to pour into the United States to avoid risks.
Therefore, under the superposition of the Fed's reversal of interest rate cut expectations and the risk of war in the Middle East, the U.S. dollar index rose above the two strong marks of 105 and 106, which naturally forced non-U.S. currencies to fall collectively.
Among the many Asian currencies, there are two national currencies that are the most special.
Although India's GDP has been in the top 10 in the world in recent years, today's Indian rupee, no matter how it plummets, the impact on the world economy is still limited to India, and the collapse of the exchange rate of other Asian countries is also the impact of trade between the domestic economy and the counterpart foreign trade countries.
Among the Asian currencies, the rise and fall of their own currencies will affect the international financial order, only the yen and the renminbi, and the impact of the two on the global non-US currencies is very worthy of comparative study.
Since the beginning of this year, the yen has risen against the U.S. dollar to break through important thresholds such as 145, 150, and 155. We observed the collective weakness of the Asian exchange rate in mid-April, and until today, we are writing an analytical article to see if the Bank of Japan will intervene.
In the past few months, as the yen exchange rate has been constantly refreshed and approaching the important point of 1990, when the Japanese economy "lost 30 years", many experts around the world have repeatedly predicted the point at which the Bank of Japan will intervene in the exchange rate.
As a result, after the Bank of Japan meeting on April 25~26, it was announced that Japan's interest rate remained unchanged and that there was still no intervention in the yen, and the yen exchange rate quickly broke through 156 today, and everyone withdrew the Bank of Japan's intervention node to 160 node again.
If it is the law that the exchange rates of Asian countries fell in mid-April because of the strengthening of the dollar index, then this week the dollar index has been trading sideways, and the yen is still the worst extreme since 1990, which is the unique disease of the yen.
In the past few years, the main substitute for mainland science and technology products in the international market has been Japanese goods, so some experts have always claimed that the depreciation of the yen is good for Japan's exports and will form a harvest for the mainland.
This view sees the "sesame seeds" but ignores the watermelon of the Japanese economy. Geographically speaking, Japan is a densely populated island country with a narrow area, and its resource endowment is extremely scarce.
In the past few decades, Japanese manufacturing has also relied on the transfer of the United States to gain a good share of the world, but Japan, which has no geographical depth and independent resources, relies on imports for a large proportion of its means of production and energy supply, making Japan's manufacturing more like a "porter who buys and sells".
Japan's dependence rate on foreign food is more than 60%, the foreign dependence rate on energy is more than 88%, and the foreign dependence rate on minerals is also about 80%, and the most direct consequence of the excessive depreciation of the yen is that the prices of Japan's imported oil, natural gas, and metal ores have all risen, resulting in imported inflation.
On the one hand, imported inflation has affected the lives of Japanese people, and the price of an ordinary bowl of ramen in Japan has risen to more than 3,000 yen, close to 150 yuan.
In March this year, the wage negotiations between Japanese labor unions and the business community also demanded a record wage increase of more than 6%, compared with Japan's GDP growth of about 1%, and this increase in wages will of course eventually turn into a surge in CPI.
In addition to the domestic impact, Japan's imported inflation has been transmitted to export products through the industrial chain, which has long offset the depreciation of the yen on the export exchange rate, and further reduced the global competitiveness of Japanese goods with inflationary prices.
Of course, the depreciation of the yen not only affects the international competitiveness of domestic products and the quality of life of the Japanese people, but also has a negative impact on the whole of Asia.
Over the past few decades, the yen has maintained negative interest rates for a long time, while maintaining free convertibility, which has made the yen extremely frequently used in trade around the world, especially in the countries surrounding Asia.
In the past decade, Japan has been one of the top three trading partners of South Korea, Taiwan Province of the mainland, and Southeast Asian countries, and the yen has become a major reserve and circulation currency of Southeast Asian countries in addition to the US dollar.
The unilateral acceleration of the depreciation of the yen has allowed many Asian countries to sell off their yen assets while reversing the momentum of "diversification of foreign exchange reserves", thus deepening their overdependence on the US dollar.
Therefore, in the past years of US interest rate hikes and interest rate cuts, the accelerated depreciation of the yen is often regarded as the first accomplice of US imperialism.
During the financial crises of 1997 and 2008, the currency depreciation of strong Asian economies such as the yen and the South Korean won often led to competitive devaluation of Southeast Asian countries, which were more economically fragile.
The United States is staring at the economic growth data, the U.S. Treasury yields are alarming, and the crisis of the collapse of many banks is not cutting interest rates, hoping that with the cooperation of the depreciation of the yen, the central banks of emerging economies that cannot bear it will operate first.
The biggest difference between the world economy and the previous decades is that the world's major economies are the world's major economies, and the United States has not waited for the window for the global harvest of interest rate cuts.
The US imperialists' round of tidal harvest of the dollar is still supported by the yen, so where is the biggest variable?
In addition to the yen, the internationalization process of the renminbi in Asia is accelerating.
Since January this year, whether it is developed economies such as Japan and South Korea, or emerging economies such as India and Vietnam, which can be called "growth stars", the exchange rate against the United States has fallen to near a record low.
At the beginning of this year, the US dollar was 7.09 against the yuan, and now it is 7.24, and the yuan has depreciated by 2 percent in four months.
Behind the 2% depreciation of the RMB, the US dollar index rose above the key points of 105 and 106, so the change in the exchange rate of the US dollar and the RMB is that the RMB is "super stable" and the US dollar appreciates unilaterally.
In stark contrast to the renminbi, other major Asian economies have depreciated by around 7% in four months, proving that in addition to the strength of the dollar, the reason for its own collapse is even greater.
On the one hand, the "super stable" yuan is due to economic fundamentals, especially the rapid recovery of the manufacturing industry, which supports imports and exports.
Behind the accusation of "capacity dumping" in China's manufacturing industry by many Western countries, it means that the price competitiveness is too strong, which supports the exchange rate.
On the other hand, the mainland CPI has been hovering around 0 for more than a year, and the PPI stage is negative, which has a certain risk of deflation in China, but at the same time, low inflation also leaves enough room for us to deal with imported inflation.
Although the mainland is endowed with resources and energy resources much stronger than Japan, our manufacturing industry is far more diverse and large-scale than Japan, so our dependence on energy imports and metal ore imports is no worse than Japan's.
However, our PPI and CPI space allow us to expand import capacity smoothly in the next year or two without worrying about imported inflation, and the RMB exchange rate can also become the world's second strongest currency in the context of a strong dollar.
The strength and stability of the renminbi, and the "endless ups and downs but giving up intervention" against the yen, we have given Asian countries a new choice.
In the past decade or so, we have often talked about the internationalization of the RMB, but in the context of our failure to relax financial supervision, the "impossible triangle of currencies" has determined that the RMB cannot be fully and freely convertible, and internationalization can only be "a day at a time, jogging in small steps".
In the past four years, the renminbi has demonstrated stability beyond global people and mainstream currencies in the long cycle of super-deflation of the US dollar and violent interest rate hikes, and currency stability is the foundation of internationalization.
The stability of the renminbi is equivalent to repairing the canal, but an important external factor for whether it can attract living water is whether the trading partners have "demand other than the dollar".
In recent years, the violent interest rate hike of the US dollar has led to the return of the global dollar and the shortage of US dollars in various countries around the world, thus providing an opportunity for the internationalization of the RMB and the exchange of local currencies of trading countries.
Of course, we must also see that the internationalization of the renminbi and the settlement of the domestic currency of the trading country, bypassing the US dollar, of course, have the advantages of reducing dependence on the US dollar, avoiding being harvested, and even establishing a new settlement system in the future.
But at the same time, in the context of the collapse of the exchange rate of most trading partners and the instability of the currency, giving up the US dollar and the settlement of the other party's local currency is good for the other party, and it is a dumb loss for us.
Therefore, after the RMB shows the world's most stable currency, we vigorously promote not only the "local currency settlement of trade between the two countries", but also the "large number of currency swaps + RMB settlement".
For example, in the foreign trade with the UN case or South Korea, we pay for imports in RMB, and South Korea and Vietnam import our goods in their own currency.
With the depreciation of the Vietnamese dong and the Korean won, the value of the currency we actually received decreased, avoiding the dollar, but suffering a dumb loss.
If a large amount of local currency swap is implemented first, when the exchange rate of South Korean won, Vietnamese dong and RMB is stable, the swap will allow South Korea and Vietnam to have a large amount of foreign exchange in RMB.
Then in the trade between the two countries, Vietnam and South Korea both use the yuan to settle with us, because the value of the yuan is stable for a long time, so that businessmen from all countries will not suffer.
Therefore, at a time when the dollar is strong and the currencies of many countries are plummeting, even if the yen is in circulation at will, who dares to use it if it is falling endlessly?
At this time, the value of the RMB has undergone a long-term US dollar test, and Asian countries are looking at it for strength and stability, so this has become the golden window period for us to push "increase local currency swap + RMB trade settlement".
Without changing the expectation of interest rate cuts, the strength of the dollar will continue, and the yen will continue to fall and show no signs of intervention.
It was only when the dollar could not withstand the interest rate cut, and the day the Bank of Japan took action to stabilize the exchange rate, that it suddenly realized that the foundation of RMB settlement was unbreakable!