Dollar Rises to 47.3%, Euro Hits All-Time Low

Under the unpredictable conditions of the US dollar's interest rate cuts, the global currency market is in turmoil, with the smoke of financial warfare spreading to all countries around the world.

At the originally expected time for interest rate cuts, the United States has released a black swan, delaying the timing of the cut and even indicating that it will continue to aggressively raise interest rates.

A new round of financial currency war has already begun.

China cannot remain unaffected; the dollar's harvest will be even more frantic.

For the renminbi, the more chaotic the financial market is, the more opportunities we have to rise.

One argument is based on the renminbi's share of SWIFT settlements, which has once again reached a historical high.

The US dollar has seen a significant increase in the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which released the latest international payment share report for March.

There have been significant changes in the five major global currencies, namely the US dollar, renminbi, euro, yen, and pound sterling.

The US dollar has two notable characteristics.

From the global payment data, the US dollar remains the world's largest currency, with the share for March rising to 47.3%.

However, looking at the global foreign exchange reserves data, the US dollar shows a continuous downward trend.

What are the reasons for this tightening and relaxation?

First, the US dollar's share increased by 0.8% month-on-month in March, basically continuing the upward trend that has been stable since the US dollar began to raise interest rates two years ago.

As the US dollar interest rates remain high, global US dollars have started to flow back to the United States, and the US dollar continues to maintain its strength.

However, other currencies, except for the renminbi, have been greatly impacted.

The most obvious examples include the yen, won, euro, etc., and small country currencies are facing the predicament of collapse, such as the Vietnamese dong, Egyptian pound, Sri Lankan rupee, Argentine peso, etc.

Due to the US dollar's interest rate of up to 5%, this has attracted the US dollar flowing into the international market to flow back.

All emerging country currencies are holding on, and now with the continuous hawkish statements from the Federal Reserve, other currencies have lost their support and have plummeted.

Another characteristic is that although the US dollar payment share has increased, the US dollar foreign exchange share is still on a downward trend, which proves that the use of the US dollar as an international currency is slowly weakening.

With the yen, pound, and euro all declining, the reason can only be the rise in the renminbi share and the increase in the amount of currency swaps between countries.

Next, let's look at the euro.

The euro's currency payment share has declined again.

At the end of last year, it was still 22.9%, and in just three months, this proportion has dropped to 21.9%.

The euro continues to hit new lows, and if compared with the highest share of the euro at 40%, the euro has largely lost a certain international currency payment function.

This is largely because the US dollar and renminbi have taken away the euro's share.

For example, a considerable part of transactions between China and Russia, France, and other traditional European countries has been converted into renminbi.

The euro is still more than 20% now because the trade and consumption transactions between the 27 EU countries are all considered international payments between countries.

This is equivalent to China converting transactions between provinces into international payments of the renminbi.

If this data is excluded, the function of the euro as an international currency is largely nominal.

The euro is no longer the independent currency that emerged to counter the US dollar hegemony.

It has basically been eroded by the US dollar, and the geopolitical war in Europe has greatly affected the status of the euro in the minds of other countries.

People will think that if a war breaks out in Europe, the euro will basically collapse, and keeping the euro as a foreign exchange reserve will be a big loss.

The euro was once the pride of European politicians such as Merkel, Schroeder, Chirac, and Sarkozy.

People once hoped that the euro could replace the US dollar and allow emerging countries in the world to get rid of the US dollar's harvest.

However, after a series of changes such as the 2008 subprime crisis, the sick pig five countries, and the US dollar interest rate hike, the euro has gradually weakened.

From the European perspective, we started to increase US bonds in 2008, which objectively strengthened the endorsement of the US dollar with China's credit.

This has also objectively led to the weakening of the euro.

Until now, we can find that among the top 10 countries holding US bonds, there are no European economic powers such as Germany, France, Italy, and Spain.

This is also a legacy of the euro as a rival to the US dollar.

After the continuous devaluation of the euro, the GDP of so many EU countries is not even as much as that of the United States, which is still based on the hollowing out of US manufacturing.

The reason is the appreciation of the US dollar due to interest rate hikes.

In the previous interest rate hikes, the euro was harvested too badly by the United States, and the exchange rate plummeted.

Now the United States has started to claim that it will continue to raise interest rates, and the euro and pound have plummeted again.

The pound was still more than 8% in the first half of last year, and now it is only 6.5%.

This 6.5% is still largely held by countries such as Canada, Australia, India, etc., similar to the euro.

The renminbi continues to rise in the "chaotic" world, ranking fourth after the US dollar, euro, and pound, surpassing the yen.

The share has reached 4.7%, higher than the yen's 3.5%, and has once again set a new high for the renminbi.

The puzzling thing is that if calculated according to the GDP share of each country, the United States accounts for 25% of the world, China accounts for 18%, and the EU accounts for 16.5%.

Why is China's renminbi's participation in global payments only 4.6%, ranking fourth?

The renminbi is naturally undervalued.

As the world's leading trade power with the largest trade surplus, China, the 4.7% data comes from the SWIFT system controlled by the United States.

However, not all of our trade settlements rely on this system, such as trade with Russia, which mainly uses local currency settlement.

Since this year, the total trade volume between China and Russia has exceeded 240 billion US dollars, an increase of 26% year-on-year, and China's exports to Russia have surged by 50%.

In Sino-Russian trade, more than 80% no longer use the US dollar for settlement.

This amount alone is equivalent to 20% of the UK's foreign trade.

It is expected that by 2024, Sino-Russian trade will reach 300 billion US dollars.

In addition, China has signed currency swap agreements with Brazil, Argentina, Saudi Arabia, and other countries, and has gradually guided these countries to use the renminbi for settlement in trade with China.

In November this year, China reached a 50 billion yuan local currency swap agreement with Saudi Arabia.

It is worth noting that as the world's largest oil-producing country, Saudi Arabia's frequent investment in China, increased trade, and use of local currency settlement undoubtedly poses a challenge to the status of the US dollar.

So far, China has signed local currency swap agreements with more than 30 "Belt and Road" countries, which has an important role in promoting the internationalization process of the renminbi.

At the same time, China has established the Cross-Border Interbank Payment System (CIPS) since 2015, which now covers 4,500 banking institutions in 182 countries around the world, and the average daily transaction amount and settlement volume continue to rise.

In summary, although the US dollar accounts for 47% of the global currency payment share and its position is stable, its rise is not a one-time effort, but has developed over nearly a hundred years.

It is not easy for China to achieve such results in a short period of time, and the renminbi still has a broad prospect on the international stage in the future.

At present, China's GDP is equivalent to 4.19 times that of Japan, 4 times that of Germany, 4.75 times that of India, 5.32 times that of the UK, 5.82 times that of France, 8.12 times that of Italy, and 8.35 times that of Brazil.

It is also 1 trillion US dollars more than the total GDP of the 27 EU countries, equivalent to the entire GDP of Saudi Arabia.

It is obvious that the internationalization of the renminbi still has a great opportunity for development, surpassing the EU and the UK will happen soon, and China's current manufacturing output is almost more than the total of Western countries.

So the corresponding financial status has not been fully matched, of course, this is also related to our country's policy of being an industrialized country.

As long as we can continue to develop the economy and improve our financial capabilities, it is highly likely that the renminbi and the US dollar will go hand in hand in the future.