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"Whose pot is the RMB exchange rate falling?" Shipping Logistics | International Logistics | International Freight Forwarders | Guangzhou Freight Forwarders | Panyu Freight Forwarders | Hongde International

Jul 05,2023

What is the reason for the decline in the exchange rate in the past six months?

The market is divided on the reasons for the decline, and there are many different reasons.

From a trade perspective, the overall trade situation was indeed shrinking in the first half of this year, but it was not as bad as imagined!

You have also recently seen news that Argentina is using the yuan to repay the IMF's dollar debt through a currency swap line with the yuan. As of the first half of the year, China's RMB swap line for Argentina was about $23.3 billion.

With the US dollar raising interest rates, many small and medium-sized economies around the world have been pulled across by the return of the US dollar, resulting in an acute shortage of US dollars and having to repay US dollar debts. And those countries that have signed currency swap agreements with the yuan take the yuan's quota to pay off their dollar debt. To put it bluntly, it is to use RMB to fill the hole where the US dollar is missing in the market. This is the main culprit of this wave of RMB decline.

According to incomplete statistics, there are: Turkey, Pakistan, Nigeria, Iran, Algeria, Vietnam, Venezuela, Belarus, Argentina, Kazakhstan, Uzbekistan, Tajikistan, Kyrgyzstan and Turkmenistan.

The currency swap agreement is not a simple exchange of currencies as described on the Internet. Simply put, the People's Bank of China and the Central Bank of Russia provide each other with local currency loans within a certain period of time at the agreed exchange rate and amount.

What is the difference between borrowing local currency and exchanging currency? Let me explain. First of all, this kind of lending is conditional. This agreement will only be initiated when there is a demand for trade or investment between China and Russia. Otherwise, there will be no large amount of RMB or ruble flowing into each other's countries.

Secondly, this kind of borrowing is limited, and the total amount of local currency borrowed by both parties cannot exceed the agreed upper limit, that is, it will not cause large fluctuations in the exchange rate. Finally, this kind of borrowing is for a time limit, and at maturity, the parties are required to return the local currency and interest at the originally agreed exchange rate and amount, so that it will not result in long-term currency holding or devaluation.

With the impact of the world financial crisis and the European debt crisis gradually weakened, the world economy began to recover.

Under the background of the globalization of world economic development, China has put forward the "Belt and Road Initiative" initiative to continuously deepen economic and trade cooperation between China and countries in Central Asia, West Asia and South Asia.

Sharing the dividends of China's economic development within the "Belt and Road" region, China's status as a major country on the world economic stage has gradually become prominent.

At this time, countries with relatively few economic and trade ties with China, such as Morocco and Suriname, have also chosen to sign currency swap agreements with China, and some African countries even directly use RMB as the trade settlement currency.

The RMB must go out and have to go out, otherwise how can it exchange or even make profits with many resources and markets in the world!

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