Glamor Economics

Chapter 121

Chapter 16 The Economic Pattern Dominated by the Exchange Rate——A War Without Smoke

Section 1 Control the currency, you control the world - exchange rate

Song Hongbing said in the book "Currency War": "In the 1694 years since the establishment of the Bank of England in 300, behind almost every major change in the world, we can see the shadow of international financial capital forces. They influence the economy of a country The lifeblood controls the political destiny of a country, and controls the flow and distribution of world wealth by inciting political events and inducing economic crises. It can be said that a world financial history is a history of conspiracy to dominate human wealth."

The exchange rate dispute is a war without smoke.Henry?Kissinger said: If you control oil, you control all countries; if you control food, you control all people; if you control currency, you control the entire world.

Since 2007, the pressure to appreciate the renminbi has mainly come from the United States, and the reason why the United States oppresses the appreciation of the renminbi is the current account surplus (mainly trade surplus) and capital account surplus (mainly international direct investment) between China and the United States.During the three Sino-US strategic economic dialogues, under the guise of oppressing the appreciation of the renminbi, forcing China's financial opening has always been the main purpose of the US side.

From 2006 onwards, the rate of appreciation of the renminbi accelerated.This is because on the one hand, the U.S. economic engine has slowed down significantly, and the U.S. dollar in the international exchange market has weakened across the board, which has triggered a continuous rise in the RMB exchange rate.On the other hand, China's foreign exchange reserves exceeded the US$2006 trillion mark in October 10, and the cumulative trade surplus in the first 1 months reached US$10 billion.An important consideration for the U.S. to demand the appreciation of the renminbi is that the appreciation of the renminbi can significantly increase the cost of China’s export commodities in the international market, which can damage the competitiveness of Chinese commodities, which in turn stimulates China to import a large number of U.S. commodities and reduce the trade surplus. .

Wild fluctuations in exchange rates can often have disastrous consequences.Take Japan and Southeast Asia as examples. After the financial crisis, the wealth accumulated over the years will be wiped out overnight, and drastic exchange rate changes will trigger a tragic financial earthquake.So, how do exchange rate fluctuations come about?

In international financial operations, a country's balance of payments will lead to fluctuations in its currency exchange rate.The balance of payments is a summary of all the foreign economic and financial relations of the residents of a country.Foreign exchange receipts arising from an economic transaction (such as an export) or a capital transaction (such as foreign investment in the country).Since foreign exchange usually does not circulate freely in the domestic market, it is necessary to convert the foreign currency into the domestic currency.This forms the foreign exchange supply in the foreign exchange market.Combining these transactions and recording them all in the balance of payments statistics constitutes a country's foreign exchange balance.

A country's balance of payments reflects the country's international economic status, and also affects the country's macro- and micro-economic operations.

If foreign exchange income exceeds expenditure, the supply of foreign exchange increases; if foreign exchange expenditure exceeds income, the demand for foreign exchange increases.When the supply of foreign exchange increases, when the demand remains unchanged, the price of foreign exchange will directly decrease, and the value of the local currency will rise accordingly; when the demand for foreign exchange increases, the price of foreign exchange will directly increase under the condition of constant supply As it rises, the value of the local currency falls accordingly.The exchange rate is determined by the relationship between supply and demand, and the factors that affect the supply and demand of foreign exchange will eventually affect the change of the exchange rate.There are various factors affecting exchange rate fluctuations, but economic factors are the most fundamental.

Factors that affect exchange rates generally include:
balance of payments.If a country's balance of payments is in surplus, the exchange rate of the country's currency will rise; if it is in deficit, the exchange rate of the country's currency will fall.

inflation.If the inflation rate is high, the country's currency exchange rate is low.

interest rate.If a country raises interest rates, the exchange rate rises.

economic growth rate.If a country has a high economic growth rate, the country's currency exchange rate is high.

fiscal deficit.If a country runs a large deficit in its fiscal budget, its currency exchange rate will fall.

foreign exchange reserves.If a country's foreign exchange reserves are high, the country's currency exchange rate will rise.

[links to related words]

Exchange rate The ratio of one country's currency to another country's currency is the price of one currency expressed in another currency.Since the names and values ​​of the currencies of various countries in the world are different, a currency of one country must have an exchange rate for the currencies of other countries, that is, the exchange rate.The reason why the currencies of various countries can be compared and form a mutual price comparison relationship is that they all represent a certain amount of value, which is the basis for determining the exchange rate.Under the gold standard system, gold is the standard currency.The monetary units of two countries that implement the gold standard system can determine their relative value, that is, the exchange rate, according to their respective gold content.

Balance of Payments Balance of Payments is a flow concept.It reflects the flow of capital in the process of economic transactions, including the sale and purchase of goods and services, barter exchange, exchange between financial assets, free one-way transfer of goods and services, and free one-way transfer of financial assets.Generally, the economic transactions recorded in the balance of payments are between residents and nonresidents.

The Balance of Payments statement records all of a country's external economic transactions, including not only monetary payments caused by purely economic transactions, but also monetary payments caused by politics, culture, and military affairs.Double-entry accounting is generally adopted, with expenses recorded on the debit side and income recorded on the credit side.The balance of payments includes current account, capital and financial account, reserve settlement items, errors and omissions.

Foreign exchange reserves, also known as foreign exchange deposits, refer to the foreign exchange part of the international reserve assets held by a country's government, that is, the claims expressed in foreign currencies held by a country's government, which are held by a country's monetary authorities and can be exchanged for foreign currencies at any time. assets.In a narrow sense, foreign exchange reserves are an important part of a country's economic strength. They are foreign exchange accumulations used by a country to balance the balance of payments, stabilize exchange rates, and repay external debts.

Broadly speaking, foreign exchange reserves refer to assets denominated in foreign exchange, including cash, foreign bank deposits, and foreign securities.Foreign exchange reserves are an important part of a country's international solvency, and at the same time have an important impact on balancing the balance of payments and stabilizing exchange rates.

(End of this chapter)