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Where does the risk of decoupling between China and the US increase the linked exchange rate?

2020-07-12T11:22:57.314Z

The fierce fighting between China and the United States has expanded from a trade dispute two years ago to a full-scale confrontation. American conservatives are reluctant to accept the new international pattern of multipolarism, hoping to suppress China to maintain the world it presides over



01 point of view

Written by: Review Editor Room

2020-07-12 08:00

Last update date: 2020-07-12 08:00

The fierce fighting between China and the United States has expanded from a trade dispute two years ago to a full-scale confrontation. American conservatives are reluctant to accept the new international pattern of multipolarism, hoping to suppress China to maintain the world order it presides over. "Opinion 01" pointed out earlier that China began to actively prepare for the upcoming currency war, corresponding to the next dimension of Sino-US wrestling. Recent developments in the situation have confirmed this conjecture. When the US dollar becomes more and more uncertain, the Hong Kong government must also think about where the exchange rate linked to the US dollar should go.

In the "2020 Caixin Summer Summit" held in Beijing on the 22nd of last month by Vice Chairman of the China Securities Regulatory Commission, Fang Xinghai proposed three reasons for the need to accelerate the progress of RMB internationalization, all related to the uncertainty of the US dollar. The first two points are the Fed’s implementation of unlimited leniency to save the US economy, making the dollar-led international economic system full of uncertainty, and finally highlighting the huge risks of the dollar payment system, suggesting that the United States should use U.S. dollars as weapons under early wrestling Attack the Chinese financial system. On the same day, Zhou Li, the former deputy minister of the Department of External Relations of the CPC Central Committee, published an article entitled "Proactively Responding to Changes in the External Environment" in the Chinese Social Science Journal, mentioning that six key points China must be actively prepared to respond. The fourth point clearly stated that "we must be prepared to get rid of dollar hegemony and gradually realize the decoupling of the RMB from the US dollar." We believe that the US economic sanctions for using the US dollar are "choking my throat." Long buttocks govern to achieve self-reliance.

Zhou Li, the former deputy minister of the External Relations Department of the CPC Central Committee. (Web picture)

Bloomberg: American Research restricts Hong Kong banks

On the other side, the United States also seems to be planning to use the US dollar as an economic sanction against China. Recently, Hong Kong implemented the "Minato City National Security Law". US President Trump and White House advisers have been sending messages to the outside world that there will be a new round of countermeasures against China in the near future. The outside world speculates that the United States may use the US dollar as a tool to punish China. . Earlier, the US Congress passed the "Hong Kong Autonomy Act," which included punishment of Chinese officials related to national security laws for banks that do business, such as prohibiting them from using US dollars for settlement. Chinese banks have begun to prepare for this. A few days ago, "Bloomberg" also quoted news that the United States Department of State was discussing a series of punitive measures including restrictions on the exchange of US dollars in Hong Kong's banking industry to weaken the linked exchange rate system.

Whether the United States will really start a currency war, no one can assert, but China is undoubtedly making the worst plan for this, actively promoting the plan to withdraw from the US dollar. The concrete result of the Sino-US currency war is unpredictable, and it depends very much on how countries outside China and the United States treat dollar hegemony. But one thing is for sure, China is not unsure about this, and the United States has a considerable price to fight in dollars. If the result is not good, it may even collapse the hegemony of the entire dollar.

Some people underestimate the process of RMB internationalization and believe that it is far from the climate for the RMB to replace the US dollar as hegemony. It is true that in the past, China did not consider it necessary to spend a lot of effort to challenge the world order of the US dollar in international transactions. Therefore, the internationalization of the RMB did not grow very fast. If China and the United States really deviate from the currency, in terms of China's trade volume, the application of RMB will have a rapid growth. Although gold still plays a role today, the value of the mainstream credit currency in the world is always based on the productivity of the country. The value of the US dollar is based on the economic capacity of the United States, and the renminbi is also based on the economic capacity of China. China has the most complete industrial chain, and its demand and supply are strong. If the United States insists on interrupting China’s use of the US dollar, the world will not be able to avoid trade with China, and the use of the renminbi will naturally grow. Even if China must rely on raw materials such as oil and minerals, there are countries close to China such as Russia, Iran, and Venezuela. China still uses the US dollar for trading, and it still has to worry about the unilateral sanctions of the United States. Once fully decoupled, China does not have to worry about US sanctions.

Currency decoupling will hurt the US dollar

Moreover, the United States does so at great cost. On the one hand, if the United States has no way to succumb to China in the short term, it will cultivate a RMB-only economy in the long run. Even if the renminbi cannot replace the US dollar, it will weaken the global versatility of the US dollar. At that time, the US dollar will permanently lose part of the world’s market, and it will be a permanent and heavy blow to the United States that relies on the US dollar to reap world profits. Secondly, the US real economy is sluggish, and the practice of relying on printing dollars to stimulate the economy is to serve the interests of all countries in the world. This kind of behavior will likely provoke countries’ dissatisfaction with the existing dollar hegemony and induce them to join. Weaken the status of the dollar. The European Union has been promoting the settlement of the euro for many years. If there is a currency war between China and the United States, the European Union is more likely to have the opportunity to improve the status of the euro. For the time being, the United States may be enemies.

At this skeletal perspective, Hong Kong must also think about the future of Hong Kong’s pride in linked exchange rates. We cannot assert to what extent the currency dispute between China and the United States will escalate, but according to the philosophy of American conservatives, it is also difficult to ensure that the United States will not take risks to maintain American hegemony. Once the Sino-US currency is in full swing, the US dollar will inevitably face great volatility, and Hong Kong, which is part of China, will become very passive. The establishment of the linked exchange rate system in Hong Kong was aimed at stabilizing the exchange rate and benefiting Hong Kong's economic development. However, as the economies of China and the United States derailed, and even the currency was delinked, Hong Kong, which has an economic lifeline connected to the mainland, must also plan early in the event of a currency. In wartime, how to deal with the exchange rate issue, and even consider gradually replacing it with a blue currency policy.

How Hong Kong finds itself in the Sino-US game

China speeds up RMB internationalization, China-US currency war kicks off

01 point of view

China-U.S. Relations Linked Exchange Rate System 01 Views Hong Kong Version National Security Law

Source: hk1

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