Dollar's 10th Hike Sees Yuan Gain 4,400 Points Instead of Drop

At the end of April, good news arrived.

Last month, when tallying China's foreign trade, the proportion of the use of the renminbi reached 48%, surpassing the US dollar for the first time.

The Federal Reserve is not yet resigned and plans to raise interest rates once more. The May rate hike will be the 10th in this cycle.

However, it is evident that the US dollar has become a spent force. In previous rate hikes, the renminbi exchange rate continuously fell. But as the rate hike cycle entered its latter half, the renminbi instead rose against the trend by more than 4,400 points.

Now, the renminbi has, for the first time, surpassed the US dollar in China's foreign trade, which is of significant historical importance.

01, The Confidence to Sell US Debt

In 2010, the proportion of the renminbi in my foreign trade could be almost disregarded, but in just over a decade, it has risen to 48%.

In those years, due to the very favorable foreign trade situation after joining the WTO, we formed a huge trade surplus. However, since the US dollar was essentially used in foreign trade, our foreign exchange reserves accumulated a large amount of US dollars, and we had to purchase a substantial amount of US debt.

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Now, with less need for the US dollar in foreign trade, one benefit is that we no longer need to accumulate a large amount of US debt.

According to a report from the US Department of the Treasury, we have continued to sell US debt abroad this year. Including the first two months of this year, since the beginning of last year, we have sold nearly $200 billion worth of US debt.02. Everyone Uses the Chinese Yuan

Not only is China selling US debt, but Japan is also selling, and more and more countries are reducing their US bonds.

The sale of US debt by other countries may also have a certain relationship with China, after all, China is a major trading nation and a large amount of trade with China uses the Chinese yuan, which will inevitably significantly reduce the use of the US dollar.

In the past, Saudi Arabia earned a lot of US dollar income by selling crude oil. But now Saudi Arabia has reached an agreement with China that future crude oil products sold to China will start to be settled in Chinese yuan, so Saudi Arabia's future US dollar income will decrease, and Chinese yuan income will increase significantly.

In addition, Saudi Arabia is also vigorously developing its business in China, such as petrochemicals, and has invested tens of billions of dollars, and will invest in China's digital economy, communications, technology and other fields in the future, and these investments also require Saudi Arabia to prepare the corresponding Chinese yuan.

Therefore, Saudi Arabia's current holdings of US debt have been significantly reduced by 40%, and Saudi Arabia has even expressed its intention to join BRICS.

Saudi Arabia's "de-dollarization" will have a greater impact on the status of the US dollar.

03. The Chinese Yuan Not Only Does Not Fall but Also Rises

Under normal circumstances, the US dollar's interest rate hike will inevitably lead to an increasing interest rate difference between China and the US, and the Chinese yuan against the US dollar will definitely depreciate.

In the first half of last year after the US dollar started to raise interest rates in March, the Chinese yuan did depreciate significantly, with the lowest exchange rate reaching 7.37.However, due to the strong support of the Chinese economy for the RMB exchange rate, in the following half year, although the US dollar has completed four interest rate hikes and is about to usher in the 10th interest rate hike of the entire cycle, the RMB has not fallen but has risen instead. The current exchange rate has reached 6.92, with an overall increase of nearly 4,500 points.

In the next two years, there are still many uncertainties in our country's foreign trade when adapting to the external environment. Now that the epidemic has been relaxed, our country's consumption environment will also quickly return to normal, and our country's international trade field will tend to balance of payments.

However, the slowdown of the world economy will still have a negative impact on our country, so our country should promote the transformation and upgrading of foreign trade more, and appropriately explore and cultivate new competitive advantages and trade growth points in other fields.

In cooperation with more and more trade entities, the status of the RMB will be further improved.