Recently, the domestic gold price has soared, breaking through a record high of 600 yuan, which has aroused widespread attention and heated discussions in the market. Some people think it's a good time to invest, while others worry it's a precursor to a financial crisis. So, why does the domestic gold price run counter to the international gold price, all the way?What kind of secret is hidden behind this?
1] The financial trap of the United States
If you want to explore the mysteries of the world economy, then you must first know the story of the dollar. The U.S. dollar is the most powerful currency in the world, and it can not only enter any country's market at will, but also control the economic lifeblood of any country. However, the dollar has not always been so bullish, it only rose after World War II. At that time, the United States had the largest ** reserves in the world, it was like a rich second generation, it said to other countries: you don't have to use ** as a currency anymore, it's too troublesome, use my dollar, it's as stable as **, and it can be exchanged at any time. This is the famous "Bretton Woods system", which pegged the dollar to ** and made the United States a world hegemon.
In 1971, the United States faced a crisis and could not guarantee a fixed exchange rate between the US dollar and **, so it unilaterally announced the termination of the Bretton Woods agreement. Since then, the US dollar has broken away from the anchor of ** and has become a banknote without physical support. However, the United States, with its hegemony in military and scientific and technological aspects, as well as the Cold War confrontation with the Soviet Union, made the US dollar the world's main reserve currency and settlement currency. The United States has taken advantage of the hegemony of the US dollar to manipulate the global financial market by means of "cutting interest rates and raising interest rates", and has cut off the wealth of countless countries and investors.
The U.S. interest rate hike has triggered a repatriation of global funds. Since March last year, the Federal Reserve has been accelerating the pace of interest rate hikes, and the US dollar deposit rate has now reached 55% and is expected to continue to rise. This makes the U.S. market more attractive, leading to outflows from other countries and regions.
The yield on the US 10-year Treasury note has soared to 45%, much higher than the deposit interest rate in many countries around the world. This makes U.S. Treasuries a feast that attracts global money, and those who want to participate have to pay for it in dollars. This has led to the depreciation of other countries' currencies against the US dollar and capital outflows. In order to stabilize the exchange rate and prevent a financial crisis, they have had to follow the lead of the United States in raising interest rates, even if it exacerbates their own economic woes. However, in this feast, there is one country that has been able to maintain relative independence – and that is China.
II].The truth of decoupling at home and abroad
In 2023, China has cut interest rates twice, hitting a new low in nearly a decade. Moreover, further rate cuts are possible in the future. What is the reason behind this?To put it simply, China's economy has to face a lot of troubles: sluggish consumption, weak investment, overcapacity, real estate bubbles, deflationary pressures, ......Both domestic and external demand are facing huge challenges. In response to these problems, China has had to cut interest rates in the hope of stimulating economic growth and restoring confidence.
Why is China cutting interest rates?Monetary policy, exchange rates and capital flows are incompatible. A country can only choose two of them, at the expense of the other. China has chosen to control monetary policy and maintain a stable exchange rate, rather than giving up the freedom of capital movement. In order to prevent capital outflows or inflows, China has implemented strict control measures. For example, each person can only exchange $50,000 in foreign exchange per year, and more than that is not allowed. In this way, China can flexibly adjust its monetary policy according to its internal economic conditions, while ensuring the balance of the RMB exchange rate. Therefore, the US dollar's interest rate hike does not necessarily mean that the renminbi will depreciate sharply, nor will it have an impact on China's financial stability.
But in doing so, a loophole has emerged, allowing some speculators to take advantage of the loopholes in exchange rates and tariffs to carry out a **smuggling campaign**. They use dollars to sell them at low prices abroad, and then sell them through various hidden channels, making huge profits. In this way, it has caused the domestic market to be in short supply and strong demand, while the foreign market has been oversupplied and the demand is sluggish, which is the truth of the decoupling at home and abroad.
3. ** is the key to fighting the hegemony of the dollar
The new round of economic contest between China and the United States will determine the trend of the RMB exchange rate. At the moment, we are in the midst of a pivotal endurance race to see who can stay the course. If the U.S. continues to raise interest rates, we will have to cut them to maintain economic growth and financial stability. If the US starts cutting interest rates, we have an opportunity to tighten monetary policy and reduce interest rate differentials and gold price differentials.
I think China has an overwhelming advantage in this contest. The reason is simple, the United States has no room to raise interest rates, and it is facing various internal and external problems, such as defaults, small and medium-sized enterprise bankruptcies, banking crises, auto workers' strikes, fiscal deficits, and so on. All of this has led to a recession in the U.S. economy. In July and September this year, the Fed has paused interest rate hikes twice in a row, and it is likely to enter a rate cut cycle next year. At that time, we will be freed from external pressure, and it will be difficult for the United States to launch such an attack again.
How does China use ** to combat dollar hegemony?The key is to increase reserves and promote internationalization. China is the world's largest producer and consumer, but the proportion of reserves to foreign exchange reserves is only 24%, much lower than the 79% in the United States. This shows that China has huge potential and space to increase its reserves, thereby improving the credibility and stability of the renminbi. At the same time, China is also actively promoting internationalization, through the establishment of the Shanghai Exchange, the launch of the RMB-denominated Shanghai-Hong Kong Stock Connect, participation in the London market, etc., to expand the influence and voice of the RMB in the global market.
These measures are aimed at breaking the monopoly and control of the US dollar over the global financial system, allowing more countries and institutions to recognize and use the RMB as a settlement currency and reserve currency. With the escalation of Sino-US friction and the weakening of the US dollar, more and more countries have begun to increase their holdings of US bonds and turn to RMB. Russia, for example, reduced its holdings of U.S. debt by 97% in the first quarter of 2023, while raising its reserves to the fifth highest position in the world. Turkey, Iran, Venezuela and other countries have also reduced their dependence on the dollar and increased their use of the yuan. All this shows that the strategic effect of China's use of ** to combat the hegemony of the dollar is emerging.
4] Rong Yi's view: ** is a tool for China's rejuvenation
In the era of globalization, digitalization and informatization, ** is still an important symbol of money and wealth. However, we should not take ** as the ultimate goal, but as a starting point and a tool. We should use ** to create conditions for China's future development, not let ** become an obstacle for China. We should use ** to enhance China's international influence, rather than let ** overshadow China's glory. We should use ** to safeguard China's national interests, not to let ** hurt China's national dignity.