Preface

The US stock market has taken a nosedive! Overnight, the continuous decline of the US technology stocks known as the "Seven Sisters" has wiped out 435 billion yuan in value.

The collapse of the US stock market also indicates that despite multiple interest rate hikes by the Federal Reserve and a persistent refusal to lower interest rates, the US economic situation remains irretrievable.

Does this represent a "de-dollarization" that has become an inevitable decision for countries? And how should China proceed in this context?

A Collective Plunge in US Technology Stocks

With the release of the US CPI data for June, inflationary pressures have eased somewhat.

However, unexpectedly, US technology stocks have plummeted collectively, once again triggering panic in the market.

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Among them, the technology giants known as the US stock market's "Seven Sisters" have been hit the hardest.

In just one night, the market value of these seven companies has evaporated by 435 billion yuan, equivalent to the disappearance of a Walmart.It is widely acknowledged that technology stocks have always held a dominant position in the U.S. stock market, with significant declines being a rare occurrence. So, what exactly has caused this sharp plunge in the U.S. stock market?

Some analyses suggest that this is related to market expectations of the Federal Reserve beginning to cut interest rates in September. After all, following 11 consecutive interest rate hikes, the Federal Reserve seems to be in a dilemma akin to "being on a tiger's back."

On one hand, continuing to raise rates could touch the baseline of the global economy, triggering greater risks; on the other hand, if interest rates are reduced hastily, it might undermine investor confidence, leading to a withdrawal of funds from the U.S. stock market.

Against this backdrop, the collective dive of U.S. technology stocks is undoubtedly a manifestation of the market losing confidence in Federal Reserve policies.

In fact, since the Federal Reserve initiated its interest rate hiking cycle, the volatility of the U.S. stock market has been intensifying, with the financial market filled with bubbles. Some investors have even likened the U.S. stock market to a "roller coaster," which is quite an apt description.

Such a situation is inseparable from the Federal Reserve's continued interest rate hikes!The Federal Reserve's interest rate hike policy triggers a chain reaction

Although the Federal Reserve can tighten liquidity through interest rate hikes, it cannot fundamentally solve the structural problems of the US economy.

Moreover, the global economic system is highly interconnected, and any move by the Federal Reserve may touch the bottom line of the world economy, bringing a huge impact.

Just imagine, if the Federal Reserve prints dollars without bottom line, what would happen?

The answer is self-evident, that is, the collapse of dollar credit and the turmoil of the global economy.

Therefore, the Federal Reserve must be cautious on the road of interest rate hikes, and find a subtle balance point between calming inflation and avoiding excessive interest rate hikes.

However, in terms of interests, the capital market does not have so many concerns, and will only maximize its own interests.

They keenly smelled the signal of the Federal Reserve's future interest rate cuts, so they withdrew funds one after another to avoid risks.

This is like a "domino" game, the US stock market dive leads to corporate financing difficulties, the market sentiment tends to be conservative, and further exacerbates the downward pressure on the economy.

What is more worrying is that if the Federal Reserve operates improperly, it is very likely to trigger a new economic crisis.It should be noted that the lessons from the last U.S. subprime mortgage crisis are still fresh in our minds. That crisis not only severely impacted the U.S. economy but also had a significant impact on the global economy.

Now, history seems to be repeating itself.

The downturn in the U.S. stock market has already begun to affect other international markets.

Against this backdrop, many countries have gradually realized that over-reliance on the U.S. dollar is not a good thing.

Thus, the call for "de-dollarization" is growing louder, with countries starting to decouple from the U.S. dollar and striving to find a path to break free from the dollar hegemony in order to avoid risks.

In this movement, the pace of the internationalization of the renminbi is also continuously accelerating.

Under the impact of the pandemic, U.S. economic policies have far-reaching effects.

In 2020, a sudden pandemic plunged the world economy into a state of "shock."

In this crisis, the U.S. economy was hit first, with businesses coming to a halt, markets becoming depressed, and residents' income and consumption plummeting.

Faced with such a severe situation, the Federal Reserve resorted to a "flood irrigation" bailout policy.They have printed a large amount of US dollars and pumped a huge amount of money into the market, attempting to stimulate consumption and the development of the manufacturing industry in this way.

This is like giving the US economy a "shot in the arm," temporarily alleviating the symptoms of the crisis.

However, in the era of globalization, the economic policies of the United States have to consider the reaction of the global economy.

When a large amount of US dollars are put into the market, countries that purchase US debt actually suffer huge losses.

Because the large issuance of US dollars will inevitably lead to the devaluation of the US dollar, and the US debt held by these countries will also shrink accordingly.

This is like a "zero-sum game" in the global economy, and the US bailout policy has become a "hot potato" for other countries. Moreover, under the impact of the epidemic, the economies of various countries are already fragile, and the US approach is nothing more than adding insult to injury.

Some economists believe that although the actions of the Federal Reserve have temporarily alleviated the crisis, they have sown the seeds of long-term risks.

Because the large issuance of US dollars will inevitably lead to an increase in inflationary pressure, which is also one of the biggest challenges facing the US economy at present.

What is even more worrying is that the bailout policy of the Federal Reserve may exacerbate the imbalance of the global economy.

Because the large issuance of US dollars will lead to capital flowing from other countries to the United States, which is undoubtedly adding insult to injury for those already fragile economies.In the midst of this transformation, the pace of the internationalization of the renminbi (RMB) is also continuously accelerating. As the world's second-largest economy, China's voice in global economic governance is increasingly rising. The international influence of the RMB is also continuously expanding, with more and more countries beginning to include the RMB in their foreign exchange reserves. The acceleration of RMB internationalization is set against the backdrop of the U.S. Federal Reserve's 11 consecutive interest rate hikes, making the strengthening of the U.S. dollar seem inevitable. However, this "double-edged sword" has brought unexpected harm to the U.S. economy. On one hand, the strengthening of the U.S. dollar has dealt a heavy blow to the U.S. export industry. It is important to note that many U.S. industries, such as manufacturing and agriculture, are highly dependent on exports. The strengthening of the U.S. dollar will undoubtedly weaken the international competitiveness of these industries, leading to the loss of orders and factory closures. On the other hand, in an environment of high interest rates, the financing costs for businesses are also continuously increasing.This is like casting a "shackles" on the development of enterprises, forcing many companies to cut investments and even go bankrupt.

And this, in turn, will inevitably affect consumer confidence and spending activities.

What's more worrying is that the Federal Reserve's interest rate hike policy has triggered capital outflow from emerging markets.

Because under the attraction of high interest rates, many international capitals have started to withdraw from emerging markets and turn to invest in the United States.

This is undoubtedly a double blow to those already fragile emerging economies, and many countries are facing severe economic pressure as a result.

In fact, as the world's main reserve currency, every move of the US dollar will have a huge impact on the world economy.

However, in recent years, the United States has been abusing this "privilege", frequently using the hegemonic status of the US dollar to exert pressure on other countries.

But extremes meet, and the United States' approach will eventually cause other countries to be disgusted and resist.

In this economic crisis, China is steadily promoting the globalization of the yuan.

By continuously expanding the use of the yuan in international trade and investment, China is gradually increasing the international influence of the yuan, and this effort has achieved remarkable results.The proportion of the Chinese yuan in global foreign exchange reserves continues to rise, with an increasing number of countries beginning to include the yuan in their foreign exchange reserves.

At the same time, China has signed bilateral local currency swap agreements with several countries, further promoting the cross-border use of the yuan.

In conclusion,

The collapse of the U.S. stock market reflects many issues within the U.S. economy.

The Federal Reserve's interest rate hike policy, while temporarily curbing inflation, has triggered a series of chain reactions, causing a significant impact on both the U.S. and global economies.

Under the influence of the pandemic, the impact of U.S. economic policies is more far-reaching, and the call for "de-dollarization" is growing louder.

At the same time, the pace of internationalization of the yuan is also accelerating, and the impact of the dollar's turbulence on China is minimal.