On September 19th, the United States cut interest rates, and Europe and America essentially entered a wave of interest rate cuts. As the world's second-largest economy, the global focus turned to China. However, in the days following the U.S. rate cut, the People's Bank of China did not send any signals of rate cuts. At the same time, influenced by the U.S. rate cut, the dollar's decline was greater than the appreciation of the yuan, causing the yuan exchange rate to surge. On September 24th, the yuan exchange rate even directly broke the 7 mark.

Just when the outside world thought that China would not cut interest rates, on September 24th, the central bank released signals of rate cuts and reserve requirement ratio cuts. So, what is the connection between the U.S. rate cut and China's rate cut? Is the appreciation of the yuan more beneficial or detrimental to ordinary people?

The good news for the U.S., the trouble for the world?

On September 19th, the Federal Reserve officially announced the rate cut. However, this rate cut is different from the past, as the international market is no longer optimistic about the dollar but worried.

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Impacted by the COVID-19 pandemic, the U.S. printed a large amount of dollars to revive the economy, continuously lowering interest rates from 2020, with the U.S. interest rate almost equal to zero at that time. At the same time, the Biden administration also implemented the so-called "unlimited" quantitative easing policy, which was an unprecedented large-scale monetary madness in U.S. history.

The result was that U.S. prices soared immediately.

After inflation rose, the U.S. claimed to control inflation and began an aggressive interest rate hike policy. From 2022 to date, the U.S. has started 11 interest rate hikes, with a cumulative increase of 525 basis points.

When the U.S. boldly carried out interest rate cuts, they would take this opportunity to issue a large amount of dollars to purchase foreign goods and invest in other countries' resources, thereby transferring a large amount of funds overseas;However, if they suddenly start aggressively raising interest rates again, this situation would lead to another extreme. It not only causes the global flow of funds to become rapidly tight, but also the value of various currencies plummets in a short period of time. The pressure on countries that use the US dollar as a borrowing currency to repay their debts would instantly increase significantly. Even many developing countries have fallen into a vicious cycle—intensified exchange rate fluctuations, severe capital flight, soaring financing costs, and heavy difficulties in debt repayment.

Many people believe that the United States always uses the US dollar as a weapon in the financial field. Whether it is in an interest rate hike cycle or a reduction cycle, the fluctuations of the US dollar may bring considerable shocks and fluctuations to the global economy. This has precisely provided an opportunity for the appreciation of the renminbi.

Is the renminbi breaking 7 approaching?

Why is the renminbi appreciating?

Since the appreciation of the renminbi in this round, the increase has reached as high as 3,000 basis points, and the renminbi has also entered the 6 era. Chinese people who exchanged their money for US dollars will suffer heavy losses.

Some people say, didn't the US dollar just cut interest rates by 50 basis points, and the interest rate is still 4.75%, which is much higher than the domestic 2%. How could there be a loss?Firstly, these funds are transferred out over multiple years, with only $50,000 per year. The principle is the same when transferring back. Additionally, if the Chinese yuan appreciates rapidly, when transferring out at an exchange rate of 7.3 yuan for one US dollar, and transferring back at a rate where one US dollar only exchanges for 6 yuan, the loss can reach 15%.

The Federal Reserve lowers interest rates by 50 basis points, and many people believe that the current US interest rates are still high. Why would a rate cut by the Federal Reserve lead to the appreciation of the Chinese yuan?

It is essential to understand that interest rate cuts are not an instantaneous process. According to the information released by the Federal Reserve, the US will continue to lower interest rates this year and next year. During this process, factors such as investors' expectation management and the strengthening of China's power will lead more and more people to favor the Chinese yuan.

Firstly, the expected return rate will decrease.

For example, previously we deposited $2 million in a US bank with an interest rate of 5%, which would yield an annual interest return of $100,000. However, now that the Federal Reserve has lowered the interest rate to 4.5%, the interest income has also decreased to only $90,000, meaning we have directly lost a full $10,000 in interest.

Once a rate cut expectation is formed, it is hard to stop until it reaches a critical point.

Therefore, it is clear to all countries that keeping funds in the US will result in a continuous decline in interest. Instead of passively watching the interest loss, it is better to withdraw funds as soon as possible and seek higher returns elsewhere.

So, where is it more reliable to invest currently?

Regardless of whether it is from the perspective of GDP growth rate or economic stability, China stands out.Looking globally, the United States is significantly lowering interest rates, while Europe and the Middle East are plagued by continuous conflicts, leaving few places for capital to be invested. As one of the only two superpowers, China is bound to attract a substantial amount of capital to return.

Secondly, the US dollar, as the world's currency, plays a crucial role in value exchange, which is why many countries hold large amounts of dollars to meet the needs of trade.

Therefore, when the Federal Reserve eases monetary policy, it symbolizes an increase in the global circulation of dollars, leading to a weakening of the dollar's appreciation effect.

To hedge risks, many countries choose to convert some of their dollars into other currencies. Similarly, as the domestic market's demand for the renminbi increases, its supply and demand situation also changes, further promoting a significant appreciation of the renminbi.

Thus, against the backdrop of a long period of interest rate cuts by the US dollar, the appreciation of the renminbi is an inevitable trend, and breaking the 7 mark is also just a matter of time.

So, what is the impact of the renminbi's appreciation on us? What profound implications does China's release of interest rate cuts have at this time?

How much does the appreciation of the renminbi affect us?

In fact, many people do not understand the relationship between the appreciation of the renminbi and us, but in reality, the relationship is quite significant.

Firstly, as the name suggests, the appreciation of the renminbi means that it is worth more.

Through external imports, the procurement costs of goods such as fuel, food, iron ore, and cosmetics required by enterprises can be reduced, thereby enhancing consumers' purchasing power.For those planning to travel abroad or study overseas, what used to require a budget of 100,000 yuan can now be reduced to 90,000 yuan, which is equivalent to an additional 10,000 yuan in funds.

Secondly, we often talk about the internationalization of the renminbi. To achieve this, the primary condition is to ensure its exchange rate stability and avoid significant fluctuations.

Therefore, against the backdrop of the rapid appreciation of the renminbi, the People's Bank of China will inevitably take measures to curb the appreciation of the renminbi, including lowering the reserve requirement ratio or directly issuing more currency, in order to increase the supply of renminbi to the market and stabilize the exchange rate.

The signal of interest rate cuts and reserve requirement ratio reductions released by the central bank on the 24th will significantly reduce our mortgage burdens. For entrepreneurs, the cost of borrowing will be lower, and more bosses will be willing to do business. The tense job market will also be alleviated.

The Federal Reserve's interest rate cut has opened up space for China to lower interest rates. More importantly, the Federal Reserve's rate cut is a continuous process, which means that stabilizing the exchange rate will also be a continuous process.

Now that the central bank has opened up the interest rate cut window, by the first half of next year, we are likely to see more powerful policy implementations. Whether it's reducing housing loan interest rates, trading in old for new, or distributing indirect benefits, these measures can effectively alleviate current concerns about unemployment and pay cuts.

Finally, as the renminbi appreciates from 1:7 to 1:6 or even 1:5, the economies of China and the United States will become increasingly close. Although many people say that GDP has too much水分, in reality, the GDP is still a key factor in assessing a country in the international community.

Once China's GDP gets closer to that of the United States, global confidence in China will also increase, triggering a series of chain reactions.

For example, people will come to China for tourism and strengthen cooperation with China in various fields.

Therefore, the appreciation of the renminbi seems to have little impact on us in the short term. However, if the renminbi really enters the 6 era or even the 5 era, the international community's structure will undergo significant changes.There are also many people who worry that the appreciation of the Chinese yuan is detrimental to China's exports. However, the reality is that the appreciation of the yuan is an inevitable trend, but the pace of the increase should be controlled by China itself. Therefore, it can also be seen that as the yuan appreciates, the country's policies of lowering interest rates and reserve requirements have also been introduced.

As long as China can stabilize the exchange rate, the impact on exports will also be greatly reduced.

In a word, self-strength is still the key. For China, the appreciation of the yuan will only make significant progress in the internationalization of the yuan when more countries recognize and use the yuan.