Many people have noticed that during this period, the exchange rate of the Chinese yuan has experienced a significant decline. Last year, the yuan fell to its lowest point of 7.37, and it rose to 6.7 at the beginning of this year, but now it has once again broken through 7.0, even falling below 7.34 at its lowest.

However, for many people, they may not have noticed that the decline in US debt is even more severe. The yield on two-year US debt has even exceeded 5%. Powell also stated at the global central bank conference that if necessary, interest rates will continue to rise. It can be seen that a further decline in US debt is almost a foregone conclusion.

Advertisement

Both are falling, but which poses a greater risk, the decline of the yuan or the decline of US debt?

We need to look at the essence through the phenomenon and we will find out what China's layout is like.

01

In the first quarter of this year, the US debt held by ordinary US investors experienced a noticeable increase, which also led to a certain degree of recovery in US household assets. Compared with the significant decline in US debt last year, many people felt that the darkest moment for US debt has passed.

However, unexpectedly, starting from January, the US has been approaching the debt ceiling indefinitely, and this issue has not been resolved until May. The two parties in the United States have been arguing endlessly. Although Yellen has repeatedly urged publicly, the US Congress has been indifferent.

After dragging on for nearly five months, the US Congress finally approved a new debt bill.

It is precisely because of this delay that the cash of the US Treasury has almost completely run out. Therefore, as soon as the bill was passed, the US Treasury immediately began to issue a large amount of US debt.In fact, we can imagine the opposite scenario: if the debt ceiling had been reached in January and the U.S. Congress had approved an increase, the Treasury Department could have more leisurely arranged the issuance pace of U.S. Treasury bonds.

This would prevent the current situation where a large amount of U.S. Treasury bonds need to be issued in a short period, causing the market supply to far exceed demand.

Now, whether it's 2-year, 10-year, or 30-year U.S. Treasury bond yields, they have all reached new highs in recent times, with some yields even at the highest historical levels since the subprime crisis.

It's hard to imagine that after last year's significant decline, U.S. Treasury bonds could still reach new lows this year.

03

In this situation, not only have central banks of various countries continued last year's selling pace, but they have also further increased their purchases of gold.

This is obviously not what the United States wants to see, because the more gold reserves central banks have, the less dependent they are on the U.S. dollar.

Moreover, if countries return to the gold standard one after another, it may force the United States to re-peg the dollar to gold, and under the constraint of gold in the future, U.S. Treasury bonds will not be able to be issued at will like they are now.

From this, it can be seen that no matter whether it is the downward trend of U.S. Treasury bonds or the U.S. dollar, it seems difficult to rebound again, and the status of the U.S. dollar will become history.

04In comparison, the situation with the Chinese yuan is much better.

On one hand, although the exchange rate has fallen, it has its pros and cons, at least it is helpful for us to further increase the scale of exports.

This is not like the decline of U.S. debt, which is purely a crisis and cannot find any benefits.

On the other hand, the decline of the exchange rate has not become a real trend, and it has already begun to rebound. In the future, fluctuations are expected, but in the medium and long term, it will only rise higher and higher.

In fact, there is also a potential benefit: the international community's demand for the yuan is increasing, and now that the yuan exchange rate has fallen, other countries can take this opportunity to hold more yuan.

This is very helpful for increasing the international use and international reserves of the yuan.

In the past period, we have laid out the CIPS, and more layouts are reflected in signing currency swap agreements with more and more countries, and establishing yuan clearing banks in more and more countries...

In this wave of the yuan's decline crisis, there is not only "danger", but actually more "opportunity".