Historically, Britain was once a glorious empire on which the sun never set, with vast colonies and a powerful navy, and a huge influence on the global economy. But after World War II, the United States, with its technological and military superiority, replaced Britain's leadership and became the world's superpower. Britain had to attach itself to the United States, submit to its diplomatic and ** arrangements, and lost its independence and sovereignty. In the East, China has developed its economic power at an astonishing rate, from a backward agricultural country to a manufacturing and technological power, constantly narrowing the gap with the United States.
Recently, some authoritative data shows that China has surpassed the United States in many areas to become the world's largest economy. This news made Britain feel a mixed emotion, including ridicule of the United States, awe of China, and helplessness about itself. The Financial Times recently published a striking article with a headline that says straight to the heart of the UK:United StatesI'm sorry, China's economy is stronger than yours!
In this era of globalization, our lives are interconnected with people all over the world. What can our money buy abroad?How much does the economic strength and standard of living vary from country to country?How do changes in global currencies affect us?These are questions that may come to your mind a lot, but it's hard to get accurate answers. Because there are huge differences in currency, prices, income, etc., different countries, exchange rate conversion alone does not reflect the true purchasing power and quality of life.
So, is there a way for us to compare the economic and social conditions of different countries more objectively and scientifically?The answer is yes. This is the International Comparison Project (ICP), a global data survey led by the United Nations Statistics Division and involving several international organizations and national statistical offices. Its purpose is to calculate purchasing power parities (PPPs) for each country by collecting and analysing country** and gross domestic product (GDP) data, thereby eliminating the influence of currency and prices, and comparing the size of the economy and per capita income level of countries more fairly.
The survey, which has been conducted every few years since 1970, was recently conducted in 2021 and covers 176 countries and territories around the world, covering 99% of the world's population and 96% of GDP. This is the most comprehensive and authoritative international comparative data to date, providing us with a unique perspective on how to understand the world.
Purchasing power parity (PPP) is a measure of the value of the currencies of different countries, which takes into account the price levels and cost of living in different countries, thus reflecting the actual goods and services that a certain amount of money can buy. Using PPP to calculate GD) allows for a more accurate comparison of the size and level of development of different countries' economies, regardless of exchange rate fluctuations.
To understand the concept, let's use an example.
According to the International Monetary Organization**, the PPP exchange factor between the Chinese and the US dollar in 2022 is 399, which means 3The purchasing power of 99 RMB is equivalent to the purchasing power of 1 US dollar. According to this ratio, China's GDP in 2022 reached 12102 trillion yuan, which is converted into 30 US dollars$25 trillion, far exceeding the GDP of the United States in 2022, which is only 25$5 trillion. This shows that China has become the largest economy in the world, and its economic strength and international influence should not be underestimated.
However, if we use ordinary exchange rates, China's GDP in 2022 is only $18,000 billion, which is a far cry from the GDP of the United States. Why is that?The reason for this is that the exchange rate of the US dollar is seriously overvalued, or it is very watery. As an international reserve currency and settlement currency, the US dollar enjoys a special status and advantages, so it is favored and sought after by global investors. However, the exchange rate of the US dollar does not fully reflect the economic fundamentals of the United States, but is affected by multiple factors such as market sentiment and monetary policy. In 2022 in particular, the United States faced severe inflationary pressures, which led to a significant decrease in the purchasing power of the US dollar without a corresponding adjustment in the exchange rate, resulting in an overvaluation of the US dollar.
We can see this in the change in the PPP exchange factor between the RMB and the US dollar. From 2017 to 2021, the PPP exchange factor between the RMB and the US dollar has been at 417–4.23 hovers, mostly stable. But in 2022, the PPP exchange factor between the RMB and the US dollar suddenly fell below 4 and fell to 399, for the first time in history. This shows that the purchasing power of the renminbi has increased significantly relative to the dollar, while the purchasing power of the dollar has decreased accordingly. This is a confirmation of the "real reduction in the purchasing power of the dollar" brought about by high inflation in the United States.
As the world's largest economy, the United States actually relies on the strong support of the US dollar. The U.S. dollar is not only the world's most important reserve currency, but also the settlement currency for many international** and financial transactions. As a result, countries around the world need a large amount of dollars to cope with various needs, leading to the phenomenon of "international dollar scarcity".
This keeps the exchange rate of the US dollar high, which in turn enhances the attractiveness and influence of the US dollar. In this way, the United States enjoyed low-cost capital and goods, as well as a dominant position in the global market. However, this advantage is not stable, and once the international position of the United States is challenged, the demand for the dollar falls, and the exchange rate **, the United States will face a serious economic crisis. The dollar and the glory of the United States may be just a dead letter.