RMB rose above 6.8, foreign exchange reserves returned to 3.10 trillion, gold rose sharply, is this a coincidence?

Recently, there are three phenomena that deserve attention, they are the continuous appreciation of the RMB, which has risen above 6.8 and came to the vicinity of 6.78. At the same time, with the continuous appreciation of the RMB, China's foreign exchange reserves have also shown a continuous growth trend for three consecutive months. As of the end of December 2022, China's foreign exchange reserve balance has reached 3.13 trillion US dollars. Not only that, China's central bank has also increased its holdings of about 970,000 ounces of gold in the international market for two consecutive months. The occurrence of this series of phenomena points to the depreciation of the US dollar, but the reality is really so. I don't think so. This may be some kind of tacit understanding between China and the United States in the economic field.

RMB appreciation

First of all, from a monetary perspective, the continued appreciation of the RMB and the increase in the size of foreign exchange reserves are directly related to the Federal Reserve's monetary policy. In a general sense, when the dollar starts to depreciate, the currencies of other countries will appreciate passively. In China's foreign exchange reserves, not only the dollar, but also the euro, the pound, the yen and other major currencies. If the depreciation of the dollar is less than the appreciation of other countries and regions, it is reflected in China's foreign exchange reserves. The scale of foreign exchange reserves has expanded.

Gold rose

At the same time, when the RMB appreciates, some foreign capital will change from the previous net outflow state to the net inflow state again, especially the stock market, the bond market hot money is even more so, which has been fully proved since January 1, 2023 northward capital continued to flow into class A shares tens of billions of dollars; in addition, because there is a certain reverse investment relations between the US dollar and gold and central banks are worried that the overissued US dollar may affect the credit of the US dollar itself to a certain extent, so they will continue to buy gold from the international market to hedge the risk, but this also directly led to the recent rise in gold.

foreign capital

Secondly, from an economic perspective, China and the United States are misaligned in the economic cycle. In layman's terms, when the U.S. economy is improving or even overheating, China's economy tends to perform more sluggishly, while when the U.S. economy begins to show signs of recession, China's economy often begins to recover again. This phenomenon has been most pronounced in the past 2022. In the whole of last year, the U.S. economy experienced the highest inflation record in nearly 40 years. Inflation means that the economy has overheated, so the United States has been raising interest rates to contain the adverse effects of this inflation.

Economic cycle dislocation

But in the same period of time, China not only did not follow the United States to raise interest rates like other countries, but instead lowered interest rates in various ways. Even so, China's economy is still sluggish in 2022, and it is basically unable to achieve the 5% economic growth target set at the beginning of the year. However, all this may have to reverse again between 2023 and 2024. If China's economy can really recover as scheduled, then China is likely to start raising interest rates in late 2023, and the United States will resume the pace of interest rate cuts.

Trade

Finally, if you add political considerations on the basis of the economy, it is easier to understand why there is some tacit understanding between China and the United States in exchange rate changes, because in addition to China, the world's major economies may continue to raise interest rates in 2023, which will lead to lower demand in overseas markets, which will seriously affect China's exports. Coupled with the appreciation of the RMB, China's exports in 2023 may face a more difficult situation, but this is good for the domestic market. The liberalization of the epidemic and the re-inflow of foreign capital will definitely stimulate the recovery of mass consumption and real estate to a certain extent.

tacit understanding

The United States because of the interest rate hike is too fierce, the domestic economy is likely to fall into recession, that in order to reduce the impact of interest rate hikes on the economic recession, one of the important ways is to reduce the dollar exchange rate by way of increasing exports to deal with the decline of domestic consumption, and who can buy a lot of American goods, the world may only China and the European Union have the ability and need to buy, and China at this time to buy American goods is also cost-effective, because the RMB has appreciated, so, on the whole, the RMB exchange rate, foreign exchange reserves and gold price changes may be some kind of tacit understanding between China and the United States, but this tacit understanding is just a kind of each according to their needs, when a party feels inappropriate, a trade war will break out.