Since the last fiscal quarter, the United States has officially started to cut interest rates. This is not surprising, but the extent of the rate cut exceeded many expectations. Even so, the Federal Reserve, the central banking system of the US (colloquially referred to as “the Fed”) envisions four more rate cuts in 2025 and 2026.
If this continues, it will likely negatively impact the US financial market and cause China’s currency, called the renminbi (renminbi), to strengthen in the long run. US may lose the dominant position in the US-China “competition”
Over the past half-century, due to its so-called advantages such as autocratic politics, the whole-nation system and unfair competition, China has developed rapidly in the fields of economy, science and technology. However, China’s bandit development logic over the years has also caused extreme dissatisfaction among most democratic countries in the world. This includes, most importantly, the US.
In 2018, under the impetus of President Donald Trump’s administration, Western countries led by the United States launched a “trade war” against China.
However, it is unrealistic for the US to defeat communist China with a few trade barriers. The competition between major powers is often a long-standing game that depends not only on who has the bigger fist but also on who has a stronger determination.
However, no one expected that in a few years, the US macro-economy would be in trouble. Since 2020, the US has experienced severe inflation. Usually, this requires the Fed to raise interest rates, but this is not the case.
Many countries are now promoting a “multi-currency” settlement system under the active advocacy of China.
China is also eroding the original advantages of the dollar bit by bit.
China is about to reap the US in reverse
First, when the dollar depreciates, or loses value, capital suddenly becomes the most mischievous troublemaker. Investors are likely to go to other places such as China to find better investment returns. Capital is profit-seeking, and investors will go wherever the profit is higher. This means that more dollar funds would flow into China.
Second, if the renminbi appreciates, or increases in value, it will boost the real purchasing power of Chinese consumers. This will substantially minimize the Chinese people’s dissatisfaction with the government.
Third, there is a deeper “currency war” brewing behind the scenes. The dollar’s global dominance has caused other countries to offload dissatisfaction onto the dollar.
The macroeconomic situation of the US is not very optimistic.
Educationist/Administrator/Editor/Author/Speaker
Commencing teaching in his early twenties, Prof Aggarwal has diverse experience of great tenure in the top institutions not only as an educationist, administrator, editor, author but also promoting youth and its achievements through the nicest possible content framing. A revolutionary to the core, he is also keen to address the society around him for its betterment and growth on positive notes while imbibing the true team spirit the work force along with.
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