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Fed's Aggressive Rate Cut Halts Yuan Trading
The Federal Reserve's aggressive rate cut, China's improving economy, and why is the yuan trade stuck? In response to sanctions imposed by third countries, what actions have China and Russia taken to counteract them?
Not long ago, the Federal Reserve made a violent rate cut of 50 basis points, which was followed by a series of chain reactions in China's economy and stock market. However, during the same period, trade between China and Russia encountered difficulties.
Firstly, the Federal Reserve's rate cut is good news for China. The sudden announcement of a 50 basis point rate cut indicates that in this financial war aimed at harvesting global wealth, the United States has succumbed to pressure and surrendered first.
In this round of financial harvesting, apart from small and medium-sized countries such as Sri Lanka and Argentina, no major economy has declared bankruptcy or experienced a systemic financial crisis. China, the main target of the United States' harvesting, has ensured the stability of the yuan exchange rate, ultimately forcing the United States to choose to lower interest rates.
Moreover, the rate cut by the Federal Reserve has also caused a series of chain reactions. The rate cut implies that dollar liquidity will be restored, and a large amount of foreign capital will invest everywhere again.
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Before the Federal Reserve announced the rate cut, China had already issued plans to gradually relax or cancel access restrictions in areas such as education, health, sports, and services to actively attract foreign investment. Therefore, after the Federal Reserve's rate cut, a large amount of foreign capital poured into China. For example, JPMorgan recently increased its holdings of Ping An H shares by 39 million shares, and the significant rise in the Chinese stock market before the holiday is also related to the influx of a large amount of funds.
Recently, Federal Reserve Chairman Powell has also made it clear that there may be another 50 basis point rate cut this year. At that time, there may be more foreign capital pouring in, so we need to be prepared in advance.
Secondly, at the same time, China-Russia trade has been impacted. At a crucial moment when China's economy is generally improving, China-Russia trade has been affected. Previously, sources from Russia revealed that some Russian companies have frequently experienced delays in trade settlements with Chinese partners, and settlement costs have also increased significantly, with hundreds of billions of yuan in transactions stuck.
This is mainly because the United States is exerting pressure on Chinese financial enterprises through secondary sanctions. A large number of Chinese companies also have business activities in Western countries, which has led Chinese financial institutions to be hesitant to undertake financial settlement businesses proposed by Russian companies. There are also pessimistic voices that believe the total China-Russia economic and trade volume will fall below 200 billion US dollars this year.
Thirdly, in response to trade difficulties, China and Russia are taking joint actions. In response to sanctions from the United States, the two countries are actively negotiating to solve the problem. Previously, the Chinese ambassador to Russia said: China-Russia financial cooperation is an important part of the practical cooperation between the two countries.Currently, the trade between China and Russia has largely adopted the use of the Chinese yuan for settlement. Therefore, theoretically, the two countries could avoid the collateral sanctions imposed by the United States by establishing financial institutions within each other's territories.
Previously, China and Russia held their 29th regular meeting of the Prime Ministers. During this meeting, both sides signed a joint communiqué, which clearly stated the intention to strengthen bilateral financial cooperation. The scope of cooperation may include partially opening up their respective securities markets to each other. Moreover, the BRICS payment system is about to go live. Once it does, the impact of the United States on China-Russia trade will continue to diminish. Consequently, as the Chinese economy remains favorable, the difficulties in China-Russia trade will be resolved in due course, and the position of dollar hegemony will be further shaken.
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