The "Currency Flood" Of The Core Countries Of The International Monetary System Has Become A Reality.

With the Federal Reserve's second round of quantitative easing landing, and in October 5th, the Bank of Japan decided to reintroduce the zero interest rate policy and set up a total of 35 trillion yen fund to purchase assets. international monetary system Core countries' currency spamming " Currency flood "Has become a reality.

What will this currency flood lead to in China? What are the consequences and consequences of this "currency war"? I believe that to make the right decisions and judgments, we must not stick to the present situation, but we need to look at the span of the two stage of monetary wars, because the competitive exchange rate depreciation and the relaxation of money supply are only the first stage of the monetary war. The core state's tightening of monetary policy is the second stage of the real impact.

From a longer span, the output Inflation Pressure is not the biggest impact of currency floods. Just as floods often occur after floods, the second stage of monetary warfare characterized by a re tightening of monetary policy will trigger a massive reversal of capital flows and debt crisis.

The developed countries' currency spamming caused global inflation to rise. Finally, the Central Bank of the developed countries had to raise interest rates sharply, which would lead to the return of global capital from emerging markets to the core market, leading to the bursting of the emerging market bubble. This will bring disaster to emerging markets, including China. There has been a similar scene in history.

In 1970s, the "Nixon shock" triggered the currency war of western countries' currency competitive devaluation. The western main economies entered the "Pentium inflation" period, and the interest rate level was lagged behind. The London Interbank Offered Rate (1974~1977) after inflation was negative for 4 consecutive years. The average real interest rate in 1975~1980 was 01970~1980, the average real interest rate was only 0.4%.

Against this background, other countries have intensified their efforts to use Western debt financing, even if the main socialist countries hostile to Western camps are no exception. At that time, the Soviet Union introduced foreign capital as a strategic measure. During its "95" period, western capital was introduced into the total amount of US $17 billion 661 million, of which $14 billion 532 million was introduced in 1973~1975 and accounted for 82.3%. It was the highest year that the USSR borrowed from the west, and some single major loans exceeded US $1 billion.

However, by the beginning of 1980s, the late national debt financing feast ended in the tight monetary policy implemented by the Federal Reserve Chairman Paul Volcker (Paul Volcker). His iron wrist has created "the highest real interest rate since Jesus" (when he was Prime Minister Schmidt) and remained high for a long time. The US preferential interest rate (annual interest rate) increased from 6.8% in 1976 to 18.9% in 1981 and 15.3% in 1982. The London Interbank Offered Rate in the European Monetary Market increased from 6% in 1976 to 14.3% in 1980 and 1981 in 1980, and the debt financing condition deteriorated rapidly.

Starting with the global debt crisis triggered by Mexico's inability to repay foreign debts in 1982, Brazil, Mexico, Argentina, Venezuela, Cote d'Ivoire, Togo, Nigeria and Zaire successively fell into the "lost ten years" in the heavily hit areas of the developing countries' debt crisis in 1980s. The external debt crisis of Poland also gave birth to solidarity unions, thus starting the course of the drastic change of the Soviet Union's socialist countries in Eastern Europe.

At that time, China also had almost nothing to do with the Mexico debt crisis. In 1978, China's imports surged 51% to 10 billion 890 million US dollars, resulting in a deficit of 1 billion 140 million US dollars after the two consecutive years of surplus. That is the highest trade deficit of the founding of new China as at that time. It was 75.4% higher than the previous year's trade deficit of 650 million US dollars (1974), and then the trade deficit of 1979 and 1980 years increased further to 2 billion 10 million dollars and 1 billion 900 million dollars. Until 1981, it fell to a strong dollar in strength control to 10 million dollars.

In order to pay for imports, China has to use foreign exchange reserves and gold reserves. At the end of 1978, China's foreign exchange reserves dropped from US $2 billion 345 million at the end of last year to US $167 million, a decrease of US $2 billion 178 million, a drop of 92.9%. In that year, the import import ratio (foreign exchange reserves divided by the average monthly import volume) dropped to 0.18, the lowest level since 1969, and the international reserve security line is generally considered to be 3 months' import level. In 1981, China also sold 130 thousand ounces of gold reserves, and at the end of the year, the gold reserves were reduced from 12 million 800 thousand ounces to 12 million 670 thousand ounces in the last year.

In addition, because of the inability to pay for import technology and equipment, China still has to borrow high interest foreign exchange funds in the interest rate of the international financial market. The annual interest rate is as high as 15%, and the interest rate will be doubled once a half year, and the principal and interest will double in 5 years. Thus, in 1979, China's financial sector had the first foreign loan of 3 billion 531 million yuan since 1957 (equivalent to US $2 billion 270 million at the current average exchange rate). In 1980, the foreign debt servicing interest rate was as high as 2 billion 440 million yuan (equivalent to US $1 billion 630 million at current exchange rate). In January 1981, our country had to declare publicly that it was unable to carry out the introduction of a large number of complete sets of equipment signed in 1978. China's reputation in the international market has been severely damaged.

The problem has been put forward. If the first stage of "currency war" is faced with the pressure of inflation, capital inflow and asset bubbles, how will China cope with capital outflow in the second visible stage? Is it going to happen in China, similar to the bursting of the emerging market bubble of the debt crisis in 80s and the Asian financial crisis in 1998? Although the capital controls, which are nominal, but are virtually null and void, will they also protect China's economy as before?