Chapter 88 The Yuan Dilemma

"Wrong economic thinking makes people unable to see clearly where their own interests belong. Therefore, compared with interests, it is actually ideas that are more dangerous." — Keynes There have been obvious changes between the current RMB and the RMB issuance mechanism in the early days of the founding of the People's Republic of China.At that time, the highest principle of China's financial strategy was independence. It was neither pegged to the Soviet ruble, nor to the U.S. dollar, nor was it pegged to gold under the control of the Soviet Union or the West.Its purpose is to maintain the independence of the renminbi. The value of the renminbi depends on China's economic development. Sixty years later, the Chinese economy is increasingly integrated with the world economy. Under such a background, it is inevitable to make corresponding adjustments to the RMB issuance mechanism.

However, since 1994, in the RMB base currency injection, the proportion of foreign exchange funds has been increasing, which has made the RMB more and more influenced by foreign currencies (especially the US dollar).So far, foreign exchange accounts have become the main way of generating RMB base currency.The so-called foreign exchange funds, to put it bluntly, is to issue RMB with US dollars as collateral, and then through the amplification effect of the banking system, the vast majority of the 70 trillion RMB in circulation in China are actually US dollar assets.The current dilemma is that the renminbi has basically been "dollarized".

Under the current credit currency system, whether the currency is valuable depends on whether the person who creates the credit is trustworthy.At present, the United States is facing the worst unemployment crisis since the Great Depression in the 1930s, with unbearable high debt, 18% real unemployment rate, sharply depreciated real estate, and severely shrunk pension accounts. 79 million "baby boomers" will gradually retire in the next 10 to 20 years (the size of which is as high as half of the working population), the government's medical care and pension expenditure will soar in the future, the fiscal deficit will deteriorate irresistibly, and the national debt and private debt will continue to rise. The translation is that the defaults of the Americans will rise sharply and unprecedentedly, and the value of these IOUs that create the dollar will fall unprecedentedly.A breach of contract can be direct and public, or indirect and covert. The second round of monetary "quantitative easing" policy being implemented by the United States belongs to the latter.

The essence of the U.S. dollar is a currency issued with debt as collateral.Behind every dollar in circulation is someone's debt to the banking system. This banknote is actually a receipt of a claim, so everyone who holds dollars is a creditor of dollar debts. When the U.S. started the money printing machine with the "unbelievable" name of "quantitative easing", the Federal Reserve carried out large-scale "monetization" of the huge U.S. debt by purchasing U.S. treasury bonds and bonds and notes held by financial institutions. "Quantitative easing" has two meanings. One is that the scale is far beyond the normal level, so as to achieve the purpose of diluting debt; the other is that the quality of "monetized" bonds is greatly reduced, such as those issued by the "two rooms" that have already gone bankrupt. bonds.As a result, the massive additional issuance of U.S. dollars has greatly diluted the "gold content" of the claims in the hands of the original U.S. dollar holders. At the same time, the "asset poison" in the newly issued U.S. dollars has greatly increased. The "new dollar" produced by "quantitative easing" after the 2008 financial tsunami in the United States is a typical inferior currency, which is why gold, an honest currency, has skyrocketed from $700 per ounce when the financial crisis broke out in 2008 to the present Prime reason for $1400!

When the "gold content" of such claims has been greatly diluted, and the "asset poison" has greatly exceeded the low-quality U.S. dollars flooding the world, how can the global financial order remain in chaos?How can countries sit back and watch the impact of "inferior and poisonous dollars"? Since 2008, a large number of "inferior and poisonous dollars" have poured into China. China's banking system has settled foreign trade, direct investment and other channels into China's dollars into RMB, and then sold the dollars to the People's Bank of China. At this time, the "inferior and poisonous dollars" "Gloriously boarded the balance sheet of the People's Bank of China.The renminbi issued as collateral is the receipt of these inferior dollar claims, and is ultimately owned by the majority of renminbi holders. The "dollar virus" is "infected" to the renminbi through currency circulation.On the surface, the US dollar reserve assets are owned by the government, but the final receipts of these assets are in the hands of the RMB holders. Therefore, the actual owners of these "inferior and poisonous US dollar" assets are ordinary Chinese people, and the government is only a "representative". hold".

At this time, the United States began to exert force, strongly demanding the appreciation of the renminbi. If China has 2 trillion US dollars of foreign exchange assets, and the ratio of RMB to US dollar is 8:1, then 16 trillion RMB will be issued with these assets as collateral. Flows into China's economy and is widely held by the public.What will happen if the renminbi is forced to appreciate to 6:1 under pressure from the United States?To make a vivid metaphor, if 2 trillion US dollars can be exchanged for 16 trillion loaves of bread in the international market, then each receipt before the appreciation of the renminbi can be exchanged for a loaf of bread.Now the price of bread has suddenly changed to 16 trillion pieces of bread with 12 trillion new receipts. It seems that the purchasing power of new receipts after appreciation has increased, but in fact, when people use this price comparison relationship to exchange for bread, they will suddenly find that in the top 12 After a trillion receipts have taken 16 trillion loaves of bread, there are 4 trillion receipts for which nothing can be exchanged.At the moment when the renminbi appreciates, 12 trillion "new coins" are forced to be equivalent to 16 trillion "old coins", which means that the purchasing power of "old coins" for stock assets has plummeted!This is the same as Chiang Kai-shek's 1:200 exchange for counterfeit currency in the occupied areas, and the Soviet Union's 1:10 exchange for old rubles. It is a deprivation of the wealth of the old currency holders.

To make matters worse, due to the excessive issuance of US dollars, the international commodity prices have risen. Before 2 trillion US dollars could buy 16 trillion loaves of bread, if only 10 trillion loaves of bread can be bought now, the result is 16 trillion loaves of bread. The real wealth that can be claimed from old receipts has dropped from 16 trillion loaves to 10 trillion loaves, which means that the actual purchasing power of RMB holders before appreciation has shrunk significantly. This is why the renminbi "appreciated" externally, but its real purchasing power internally depreciated.When the renminbi is issued against the U.S. dollar as collateral, the depreciation of the U.S. dollar will eventually be transmitted to the renminbi holders.

When the public's attention is drawn to topics such as trade balance or exchange rate manipulation, what is really going on is the revaluation of all stock assets in China by the appreciation of the renminbi over the past 30 years.While the nominal international purchasing power of the RMB appreciates, it is accompanied by the depreciation of the purchasing power of the RMB against the huge stock assets.This process will clearly create inflationary pressures in China, especially in the area of ​​asset prices.What makes the problem even more serious is that the 16 trillion receipts belong to the base currency. When the banking system amplifies it, the total amount of credit entering China's economic entities is even greater, and its inflationary effect can be imagined.

The benefits of the increase in nominal international purchasing power generated by the sharp appreciation of the renminbi will only gradually emerge in the next few years along with imports and overseas investment, while the resulting loss of foreign exchange reserve assets and the revaluation of the huge stock of domestic assets will induce The harm of hyperinflation is immediate. The core of the appreciation game is to increase the nominal international purchasing power of the RMB after the appreciation, while reducing the actual domestic purchasing power of the stock RMB before the appreciation, thereby effectively diluting the "gold content" of RMB holders' claims on the US dollar.What needs to be emphasized here is that it is not the Chinese government that ultimately owns the U.S. debt, but the majority of RMB holders. Therefore, the Chinese people are the last to pay for the U.S. debt.

There is no suspense that the appreciation of the renminbi will inevitably lead to a larger influx of hot money, which will further strengthen inflationary pressures.Referring to the severe asset bubble caused by the forced appreciation of the Japanese yen in 1985, and the real estate price surge and stock market frenzy triggered by the 20% rise in the RMB exchange rate since July 2005, it is not difficult to see that the United States has killed two birds with one stone by forcing the RMB to appreciate sharply. One is to significantly reduce the actual debt of the United States to China, and the other is to stimulate China's asset price bubble.The faster the RMB appreciates, the stronger the urge of RMB speculators to cash out US dollar assets.When the toxic US debt carried by the "poor poisonous dollar" is almost digested in countries around the world, China's asset bubble may develop into a vicious state that is difficult to save.At this time, the United States may raise interest rates suddenly and sharply, raising the banner of countering global inflation and bursting the asset bubbles of China and other countries in one fell swoop.

Time is a key variable in wars, and even more so in currency wars.The United States needs the currencies of various countries to appreciate immediately and use the energy of economic recovery in other countries to help the United States dilute and share the bad debts attached to the "inferior poisonous dollar".How can such a selfish act of beggar-thy-neighbor not be resisted and resisted by countries all over the world! If China's asset bubble is stimulated to a large enough size, the explosive equivalent of its burst will be large enough.So, how to save the Chinese economy? The Greek and Irish sovereign credit crises that are taking place in the euro zone are "models".Euro countries have transferred the power of currency issuance to the European Central Bank. Note that this European Central Bank is an institution that surpasses the sovereign states of the European Union. Will to act.At this time, the European Central Bank will have the power to kill countries with sovereign credit crisis. It will impose a series of harsh conditions such as fiscal taxation, national debt, budget size, pension medical care, and retirement insurance to force countries to implement them. If they do not agree, it will be impossible. Get Euro currency! When there is a problem in China, it is likely that the International Monetary Fund (IMF), which claims to be the future "world central bank", will come forward. The rescue conditions can be imagined with the heel, that is, "sharing" the right to issue currency, and stipulate a series of "Not allowed" currency issuance conditions, "supervising" the implementation of China's "exchange rate" and fiscal and taxation policies, in other words, must give up control of the high financial frontier! This situation, which looks like a sci-fi scenario today, will remain sci-fi forever if handled properly.