Chapter 87 Currency wars: the reincarnation of history

The cover of the British "Economist" magazine in October 2010 showed the beacon of the world's "currency war", as if a new world war had begun.The media from all over the world immediately followed up and widely reported the "battle situation" of the "currency war". Political leaders, economists, international organizations, and high-end forums from various countries entered the "battlefield" one after another. Western public opinion locked the main "warring parties" as China and the United States , the main weapon of the war is currency, and the reason for the outbreak of the war was judged to be the undervaluation of the "RMB exchange rate".

All of a sudden, calls for "encirclement and suppression" of the RMB exchange rate came and went in the West, and the strong pressure of public opinion seemed to be overwhelming. It seemed that if the RMB did not appreciate significantly against the US dollar, there would be no way out for the world's economic imbalance, and the economic recovery of various countries would eventually suffer setbacks. War will sweep the globe, and the tragedy of the Great Depression of the 1930s will be repeated. Some American economists even pointed out that the financial crisis in the United States was caused by the renminbi.The undervaluation of the renminbi led to China’s large trade surplus. Chinese people love to save money rather than spend money and buy U.S. treasury bonds on a large scale. As a result, the U.S. is hit by China’s cheap “hot money” and the long-term interest rates in the U.S. are low, which eventually triggers asset bubbles and financial crisis. crisis.

Using the trade imbalance as an excuse and attacking China's currency as a breakthrough, and then creating chaos in China's economy, meddling in China's financial system, and finally controlling China's financial high frontier, this has repeatedly occurred in China's modern history. When the British came to wealthy China in the 19th century, they had successfully conquered more than 20 countries on the African continent, owned Commonwealth dependent countries such as Australia and New Zealand in Oceania, and controlled America, Canada, Guyana, Jamaica, Bahamas and other regions , in Asia, ruled from India (including Pakistan), Malaysia (including Singapore) to a large area of ​​land in Myanmar.Under the strategic policy of global colonization of the British Empire, in order to conquer China by force, facing a large country with a population of 400 million, it is more than enough but not enough.Therefore, if you want to conquer China, you must first conquer its currency.The collapse of the monetary system will lead to the fall of the financial high frontier, which will lead to the disintegration of the country's financial capacity, the paralysis of political power, and the disintegration of military power. Only then can China be included as its colony.Therefore, the opium trade and the Opium War were launched on the grounds of trade inequality, and the main direction of attack was to attack China's silver currency.The opium trade successfully destroyed China's silver currency system, resulting in a large outflow of China's silver, domestic deflation of "silver is expensive and money is cheap", the economy is depressed, production is shrinking, the people are miserable, social conflicts are intensified, and trade is perennial. Severe deficit, the state's finances cannot make ends meet, the tax burden is heavy and the government forces the people to rebel.The internal and external wars forced the Qing government to owe a large amount of debt to the foreign powers, mortgaged the main sources of central government revenue such as tariffs, salt taxes, and taxation, and lost the financial commanding heights of the central bank, resulting in the pricing power of trade, railways, shipping, textiles, steel, etc. The autonomy of the Westernization Movement, the financing rights of military operations such as "Coastal Defense" and "Fortress Defense" have been lost one after another, and finally the whole country has fallen into a tragic situation of semi-colonial exploitation.

In the early 1930s, just as the national government was about to complete the financial centralization of "abolishing the two yuan and changing the yuan", the silver standard currency system, the "four banks and two bureaus" and the unification of currency, and regained the high financial frontier, the Americans repeated their old tricks and attacked Chinese silver currency.Roosevelt unilaterally announced the purchase of a large amount of silver in the world, claiming that he hoped to buy silver in the market to drive up the price of silver and increase the purchasing power of silver-standard countries such as China. In fact, he was forcing China's currency to appreciate in order to dump its surplus commodities and shake the China's currency is stable.The silver bank movement in the United States caused the international silver price to skyrocket. Attracted by the rising international silver price, China's silver was "exported" in large quantities.China is not a big silver-producing country, and it had to be imported for minting coins. At this time, China's metal coins flowed away like a torrent of water. In just three and a half months in 1934, the outflow of silver reached 200 million yuan.The United States continued to purchase silver. By 1934, the price of silver in the London silver market had doubled!As expected, silver flowed out, China's currency was "appreciated", the foreign trade deficit increased day by day, foreign goods flooded the Chinese market, but China's exports became increasingly difficult.The outflow of silver caused deflation at the same time, bank credit decreased, and interest rates skyrocketed. At that time, Shanghai could not borrow money at almost any high interest rate.The outflow of silver, the shortage of money, the lack of bargaining chips in the market, and the sharp drop in prices led to the bankruptcy of industries and commerce. At the end of 1934, housing prices plummeted, and housing prices in the Shanghai Concession fell by 90%!People in the market were fluctuating, bank runs were widespread, and banks and banks went bankrupt.In the end, the national government had to abandon the monetary base of the silver standard, and turned to the British pound and the US dollar to issue legal tender based on the foreign exchange rate.After the outbreak of the Anti-Japanese War, in order to maintain the stability of the exchange rate, the foreign exchange stabilization fund had to be established, and the power of the central bank and foreign exchange management was handed over to the United Kingdom and the United States, which once again lost the high financial frontier.

This time, will the US force the appreciation of the renminbi to solve the US trade deficit and unemployment crisis?The root of the U.S. trade deficit lies in the fact that the design of the international dollar system has fatal inherent flaws. It is impossible for the U.S. sovereign credit currency to assume the function of the world currency in a long-term and stable manner.In fact, it is impossible for any sovereign credit currency to do this.The world currency mainly carries the transaction function of international trade. If the United States has a long-term trade surplus, the United States will inevitably export goods on a net basis, and the world's dollars will flow back to the United States.As a result, international trade will shrink due to the lack of trading currency, and the economies of all countries will experience recession.Similarly, the sustainable development of international trade objectively requires the United States to export currency and import goods. Therefore, the United States is destined to have a trade deficit. The only difference lies in the object of the trade deficit.

Therefore, the appreciation of the renminbi is unlikely to change the structural problem of the US trade deficit, but to shift the target of the deficit from China to India, Mexico or other countries. Renminbi appreciation is also unlikely to solve the unemployment problem in the United States.Let alone a 20% appreciation of the renminbi, even a 200% appreciation, it is absolutely impossible to start production of toys, clothing, hardware and electrical appliances in the United States, because the average labor cost in the United States is more than 10 times that of China! The decision-makers and financial strategists in the United States are of course well aware of this, and the main strategic direction of high pressure to force the appreciation of the renminbi is by no means trade and employment!

If historical experience is anything to go by, this action should be in line with historical cases. In 1840, the British Empire used the opium trade to attack the silver of the Qing government. In 1935, the United States used the "silver wave" to attack the national government's legal currency. Then this time, the United States used trade and unemployment as an excuse to launch an attack on the Chinese renminbi!