The Global Economic Turmoil Under The Dollar Standard System Is Frequent.

Recently, the US dollar index showed a strong trend due to the improvement of US economic data, the increase in interest rate expectations, and the poor fundamentals of Europe and Japan, and the return of hedge funds to the US.

Data show that the US dollar index has rebounded from below 80 in March 2014 to 94.57 in February 9, 2015, or 19.2%.

However, with the US dollar going strong, the global foreign exchange market turbulence has intensified, many markets have suffered the risk of capital withdrawal, currencies have depreciated in succession, the RMB is also hard to escape, the dollar has depreciated sharply, and the spot trading rate of the market has approached the limit of 2% of the central parity several times.

Accompanied by the New Zealand Federal Reserve, the European Central Bank, the Danish Central Bank, the Swiss central bank, the Bank of Canada and the RBOC have embarked on a loose road.

Why is the strength or weakness of the US dollar closely linked to the global economic and financial development? Combing historical data, it is not difficult to find that since the US broke the Bretton Woods fixed exchange rate system in August 15, 1971, during the past four decades or more of the pfer of the gold standard system to the US dollar standard system, several rounds of US dollar cycles have been very closely linked with the global economic and financial turbulence, indicating that the huge fluctuation of the US dollar has great influence on other countries' financial markets.

This phenomenon is not coincidental, but has its institutional reasons.

Specifically, in the early 70s of last century, the following major changes have taken place in the global economy during the ups and downs of the US dollar:

The first stage (1971~1979 years): the decline period of the US dollar.

With the "Nixon shock", the US dollar has depreciated 15% against the rest of the world's major currencies, and the US dollar has entered a period of continued depreciation.

From August 1971 to the end of 1979, the US dollar index depreciated by 27%.

Meanwhile, with the rapid growth of the US and global money supply, the prices of oil, precious metals and basic raw materials surged during the same period, and the US economy and the world economy plunged into unprecedented stagflation.

The second stage (1980~1985 years): the strong rise cycle of the US dollar.

In order to get rid of stagflation, Paul Volker, chairman of the Federal Reserve in 1979, strongly raised the interest rate of the US dollar and pushed the United States into a strong dollar era.

As of February 1985, the US dollar index had been as high as 158, leading to an increase of more than 80% in the current US dollar.

However, the global financial market has been unrest during the same period, and the most famous is the Latin American debt crisis.

Although the high external debt is the internal factor of the outbreak of the Latin American crisis, the massive influx of funds caused by the weak dollar earlier and the massive withdrawal of the capital after the strong return of the dollar are undoubtedly the accelerator of its crisis.

Since then, Latin America has fallen into the famous "lost ten years".

The third stage (1986~1995 years): the decline period of the US dollar.

Since the 80s of last century, the US economy is facing double problems of trade deficit and fiscal deficit. By 1985, the US government tried to intervene in the foreign exchange market by the comprehensive trade and competition act, forcing the appreciation of the second currencies of the world's largest economies to save the increasingly sluggish manufacturing industry.

The most famous is in September 1985, the United States, Japan, Germany, France and Britain, the finance ministers and central bank governors are

The Plaza Agreement signed by the Plaza Hotel has opened a prelude to the rapid appreciation of the yen.

Since then, the yen has risen sharply, and driven by high profits, international capital has invested heavily in Japan's stock market and housing market. The bubble economy has occupied the position of the real economy, which has finally led to the outbreak of the Japanese bubble crisis, and the Japanese economy has been in a long-term recession.

The fourth stage (1996~2001 years): the rise period of the US dollar.

The overall outbreak of the US internet economy made the US dollar enter the rise cycle in 1996.

At that time, the information technology revolution led by the United States attracted a large amount of capital to flow back to the United States and participate in direct investment and securities trading.

It was not until 2001 that the Internet bubble burst that led to a sharp contraction in the credit market.

During this period, a large amount of international capital flowed back to the United States and intensified the capital outflow in Asian markets, most notably the Asian financial crisis of 1997~1998 years.

At that time, asset bubbles in Asian countries accelerated, and the economic and financial systems suffered heavy losses.

The fifth stage (2002 to date): the weak dollar cycle, the global period

Appear.

In the period of more than ten years' weakness of the US dollar, interest rates and exchange rates in the US are not consistent.

First, with the collapse of the Internet bubble in 2001 and the subsequent "9. 11" terrorist attacks, investors' confidence in the US economy and the US dollar has been hit hard, and funds have begun to flow out of the United States in large scale.

In order to prevent the US economy from falling into a continuous recession, the Federal Reserve cut interest rates 13 times in 2001 for the first time in 1981, setting the "strongest rate cut cycle" since 1981. Until June 2004, Greenspan and his successor Bernanke launched a 17 rate hike in order to prevent inflation.

Although raising interest rates successfully responded to inflation, it also accelerated the collapse of the US real estate bubble, and then evolved from the "subprime crisis" to the global financial crisis that has affected it so far.

In the following years, the Federal Reserve launched three rounds of quantitative easing policy, and the balance sheet rose rapidly, which also maintained the longest dollar weakness pattern since the US dollar standard system.

In short, the link between the US dollar cycle and the global business cycle is amazing.

This also means that once the US dollar enters a new appreciation cycle, the impact on the global economy will be enormous.

Of course, the appreciation of the US dollar is the opening of a new round of strong appreciation cycles, or it will enter the shock stage without appreciating too much. It remains to be verified by time.

On the one hand, with every previous round

A strong appreciation is slightly different. At present, the US is still facing deflationary pressure. While reviewing the first two rounds of appreciation of the US dollar, the inflation level in the US is relatively high.

On the other hand, under the strong US dollar, whether the US exports can withstand the pressure brought by it is also facing uncertainty.

In December 2014, the US trade deficit reached US $46 billion 600 million, a new high in recent two years, especially the trade deficit of non oil products.

The author worries that once the US dollar appreciates, the US export will face a heavy blow.

Judging from this, the Fed will also observe a longer time to fully assess the impact of QE on the US economy and not raise interest rates rashly.