RMB Soars 700 Pips, Surpasses Euro Amid US-China Economic Shift

Recently, the exchange rate of the Chinese yuan against the US dollar has become a hot topic in the market.

On August 29, 2024, a report from Sina Finance showed that the yuan's exchange rate against the dollar has crossed the threshold of 7.10 in both onshore and offshore markets.

The offshore yuan exchange rate rose by more than 400 points in a single day, quoted at 7.08825; the onshore yuan exchange rate also increased by 345 points, quoted at 7.0945.

This exchange rate fluctuation may be related to the market's expectations of the Federal Reserve's interest rate cut, as well as the improvement of China's economic data and the trend of global capital flows.

In the first half of the year, the yuan's exchange rate against the dollar experienced some fluctuations, but compared with other major currencies, the yuan has shown its unique resilience and stability.

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We can see that the yuan's exchange rate depreciated slightly in the first half of the year, which is directly related to the different monetary policies of China and the United States.

The Federal Reserve's interest rate hikes have widened the interest rate differential between China and the US, putting pressure on the yuan's exchange rate to some extent.

The People's Bank of China, relying on flexible exchange rate policies and counter-cyclical adjustment factors, has successfully stabilized market expectations, allowing the yuan's exchange rate to remain basically stable at a reasonable and balanced level.

In the second half of the year, as the possibility of the Federal Reserve cutting interest rates increases, the strong trend of the US dollar has weakened.

The market generally believes that the Federal Reserve will start cutting interest rates in September, which can help alleviate the pressure of yuan depreciation.

At the same time, China's economic growth is steadily recovering, providing strong support for the yuan's exchange rate.

Experts estimate that the yuan's exchange rate is expected to show a trend of stability with a slight increase in the second half of the year, and it will fluctuate around the equilibrium level.

In addition, the impact of the yuan's exchange rate changes on foreign trade is very complex.

Although the depreciation of the yuan can help improve the competitiveness of export enterprises, it may also increase the cost of imports, putting pressure on enterprises that rely on imported raw materials.

However, as China's economic structure continues to optimize and upgrade, the adaptability and risk resistance of foreign trade enterprises are also continuously strengthening.

In terms of economic data comparison, the United States' GDP growth rate in the first quarter of 2024 was fixed at 1.4% on an annualized quarter-on-quarter basis, while China's GDP reached 4.1716 trillion US dollars, and the United States was 7.0673 trillion US dollars.

China's GDP accounts for about 59% of the US GDP, reflecting that the gap between the economic scales of the two countries is further widening.

Behind this change is the different performance in the primary, secondary, and tertiary industries of the two countries.

The United States has a much higher GDP in the tertiary industry, especially in the rental and commercial service industry, which reflects the difference in the economic structure of the two countries to some extent.

Information released by the US Department of the Treasury shows that in June 2024, China increased its purchase of US Treasury bonds for the second time this year, and it is the largest increase since April.

This trend may indicate that China has confidence in the stability of the US economy, and it may also be a way to cope with the current fluctuations in the international financial market.

In addition, the policy direction of China and the United States in the fields of trade, technology, and finance, such as the adjustment of US tariffs on China, and China's further opening up to foreign investment, are all affecting the development direction of the economic relationship between the two sides.

In 2024, the China-US Financial Working Group held a meeting in Shanghai, where both sides conducted in-depth, pragmatic, candid, and fruitful dialogues on issues such as financial stability and supervision, and the securities and capital markets.

This situation shows that despite differences, China and the United States are willing to resolve common problems through communication and cooperation, and promote the development of bilateral relations.

As the dominant global currency, the US dollar is now facing many challenges, while the yuan is steadily advancing towards internationalization.

The instability of the US dollar's status is not without reason.

The Brookings Institution in the United States said that the proportion of the US dollar in global foreign exchange reserves has dropped from 71% in 1999 to 59% at the beginning of 2024.

This change means that the proportion of non-traditional reserve currencies such as the yuan is rising.

The arbitrary use of sanctions by the United States, the continuous increase in debt, the improvement of payment technology, and the development of central bank digital currencies have all brought difficulties to the US dollar.

Especially after the Russia-Ukraine conflict, the sanctions imposed by the United States on Russia have accelerated the trend of "de-dollarization", and countries like Russia are trying to reduce their dependence on the US dollar.

China is adjusting the exchange rate to protect its national interests and promote the internationalization of the yuan.

The "White Paper on the Internationalization of the Renminbi" released by the Bank of China shows that the yuan is playing an increasingly positive role in cross-border trade and investment, and its internationalization process has made new progress.

At the same time, China's cooperation with Saudi Arabia has led to changes in oil transactions, and Saudi Arabia has accepted the yuan as the settlement currency in oil transactions, which has accelerated the process of yuan internationalization.

Although the hegemonic status of the US dollar has encountered challenges, its role in the global economy is still very large.

As China's financial market continues to open and international cooperation continues to strengthen, the international status of the yuan is expected to improve.

While promoting the internationalization of the yuan, China is also actively dealing with potential challenges, such as the opening of the capital account, the deepening and broadening of the financial market, and competition in the international monetary system.