China Bets Against the US Dollar: A New Front in the US-China Rivalry:-
There is a new front in the US China rivalry at the center of which is the US dollar China is betting against the dollar it wants the American currency to fall and for this Chinese banks have been mobilized they’ve been working on this Mission since last year apparently they’re making bets against the US dollar and they have ped more than $100 billion into these bets that’s right Chinese banks.
What is Shorting?:-
Have bet more than100 billion do on the US currency to fall so if it falls these Chinese banks will make a profit Bankers call this move a short what is a short let me explain using an example say there’s a small Chinese Bank it has 100 Yuan this Bank decides to place bets against the US dollar so with this 100 Yuan it goes to an American Bank and strikes a deal the Chinese Bank lends 100 Yuan to the American Bank.
In return it borrows the same amount of money but in the US Dollars now at the current exchange rate today’s rate 100 yuan is worth about $14 so now the Chinese bank has got $14 us and the American Bank has got 100 Yuan but this is a loan from the Chinese bank so the exchange is done the two Banks shake hands and they agreed to meet one year later in this period in this one year the value of the dollar can go up or down if the value Falls then the American Bank will have to pay more to the Chinese Bank it will have to pay more than 100 Yuan to reclaim its $14.
China’s Foreign Exchange Strategy:-
So when the two meet again after one year the Chinese bank will check the exchange rate it will calculate the difference and if the dollar has fallen then the American Bank will have to pay more this in a nutshell is shorting.
This is how Traders short companies in the stock market in a similar fashion investors can place bets against currencies too and Banks use a special instrument for this it’s called a foreign exchange swap since last year Chinese banks have been doing a lot of these swap transactions transactions worth more than 100 billion dollar according to one estimate that’s a huge sum but why are the Chinese doing this is this some kind of currency Warfare well not exactly it’s more of a defensive strategy China’s Central bank is the driving force behind these trades it is using these short positions to defend the Yuan how does that work you see when a bank takes a short position when it swaps the Yuan for the dollar this trade reduces the Yuan circulation because when the yuan is swapped for the dollar there are fewer Yuans available for trading the supply goes down it makes the Yuan scarce and anything that’s scarce anything that’s harder to get usually costs more more that is what China wanted to prop up its currency.
The Chinese Economy and Yuan Struggle:-
Because the past few months have been tough for them the Chinese currency has been losing value in the month of June it dropped to a 7mon low against the US dollar and what triggered this fall two things the US dollar is becoming stronger and the Chinese economy is becoming weaker this year investors have pulled out billions of dollars from the Chinese market all this has led to the weakening of the Yuan but instead of fixing its economy China is resorting to the next best option.
Risks of China’s Strategy:-
That is pushing the US dollar down and in the process hoping that the Yuan recovers the strategy has its own risks though if the dollar continues to strengthen then Chinese banks will take losses in fact they’ve already lost billions one estimate says that they’ve lost anywhere between 5 to 16 billion dollar but Beijing is not giving up instead it’s assembling more Firepower it is looking to amount.
China Targets Wall Street:-
A new challenge this time China is targeting Wall Street it has ordered a merger between two state-backed brokerages two brokerages in China together they will create a $230 billion Powerhouse now this deal is yet to be approved by shareholders but it’s a mere formality at this point broadly China is revamping its financial sector Xi Jinping ordered this consolidation himself last year he met Chinese regulators and he spelled out a new game plan cultivate top tier investment banks give more muscle to China’s financial sector and compete with Wall Street.
The Growing US-China Economic Divide:-
That’s what he wanted now this big merger is being seen as a step towards that something like this was hard to imagine a few years ago because of how deeply the Chinese and American economies were intertwined American companies were investing billions of dollars into China Chinese companies were going public in the US until 20 19 more than 150 Chinese companies had listed on major US exchanges together they were worth over $1 trillion but now a split looks inevitable the US is building trade barriers against Chinese Goods American companies are being pushed to rebuild their supply chains and reduce their dependence on Chinese Factories.
At the same time xiin ping has launched his own campaign he is Waging War against a western Le World Order The Divide between China and the US will only deepen from here across continents one powerful bringing you diverse perspectives on the issues that matter we go beyond the boundaries to give you that little extra about every sporting moment so thank you for making first post 5 million strong we’re counting on your support and you can trust us to bring you the news unfiltered and banished climate change is on our doorstep it’s time for a revolution to take Route and it starts with 1.4 billion Indians it starts with one tree one tree for Humanity one tree for Mother Earth one tree for a future project one tree a news8 network initiative on this of today the T20 World Cup bang move across to the West and East can respect hello I’m Al coming to you from South Africa .
Today we have a special start with a report on India shifting nuclear for the first time since India officially became a nuclear part hello and welcome to First P America I’m Eric ham coming to you live from the nation’s capital in Washington DC.