Wrote on Jan 11 2022. Translated by ChatGpt4

In an article titled “2022 – The Year of Global Economic Collapse?” that I wrote two days ago, I made a bold prediction that we may truly be on the eve of a major historical change. From the US-China trade war in 2017 to the escalating tariffs in 2018, to the ongoing protests in Hong Kong in 2019, to the COVID-19 pandemic in 2020, to the heated debates in various sensitive regions in 2021, and to the introduction of the digital RMB in early 2022, what kind of trend can we see here?

In my opinion, the internationalization of the RMB will not be a gradual process. It is impossible to achieve success through gradual progress, but rather, it will be accompanied by short-term and massive fluctuations in the exchange rate, followed by a gradual reduction in volatility and repositioning through intense changes and bargaining. Therefore, from this perspective, the internationalization of the RMB may have a logical relationship with the global economic collapse (in the financial sector), and it can even be said that they are mutually causal.

In my article “2022 – The Year of Global Economic Collapse?”, I mentioned that the Chinese economy is controlled by complex capital. This is entirely normal, as the ultimate form of capitalism is the monopoly and control of capital. However, China hopes for the internationalization of the RMB, hoping to become one of the mainstream currencies in the international financial system. In this process, the uncontrolled RMB capital is the biggest opponent of the internationalization of the RMB. Therefore, under this logic, “common prosperity” will be put on the agenda. The more dispersed wealth is, the lower the resistance to the internationalization of the RMB will be. The more concentrated the wealth is, especially the uncontrolled capital (such as capital concentrated in state-owned enterprises), the higher the risk of the internationalization of the RMB. Therefore, cleaning up uncontrolled RMB capital is a necessary step to clear the obstacles to the internationalization of the RMB. Due to the complex interconnections of capital, this process is likely to be accompanied by a stock market collapse, which is, in fact, the most effective means of cleaning up capital. Due to the extensive connections with international capital, it will also affect financial institutions in other regions of the world, creating a global economic crisis, which may become the biggest driving force behind the internationalization of the RMB.

In this logical chain, the internationalization of the RMB must first clear its opponent’s position, which requires the cleaning up of uncontrolled RMB capital, which will inevitably have a devastating impact on the financial market, and will inevitably affect international investors, and will inevitably affect the global financial market (especially given the overvaluation of the US stock market). This will lead to major economies flooding the market, and the RMB may rise sharply in exchange rates, becoming a major global safe-haven currency. Since uncontrolled RMB capital has been cleared up previously, the RMB can be “devalued on demand,” which may instantly surpass the US and become the world’s largest economy, consolidating the RMB’s position in internationalization.

According to statistics, the expected GDP of the United States in 2021 is $21.5 trillion, the expected GDP of the European Union is approximately $17 trillion, and China’s GDP in 2021 “once again exceeded 100 trillion yuan”, which is approximately $15.6 trillion calculated at a rate of 6.4. China’s economy is about 72% of the size of the United States. Let’s use a simple number to illustrate this idea: for example, if China triggers a stock market crash by cleaning up capital, and even gives up the Shanghai and Shenzhen stock markets, causing a 40% loss to GDP this year, the impact and loss suffered by major economies such as the US and Europe would result in a 20% loss to their GDP. I don’t think this prediction is too extreme. If the exchange rate of the renminbi is adjusted to, for example, 1:3, the stock market losses will be offset, and the GDP will reach $20 trillion, surpassing the US’s $17.2 trillion and becoming the world’s largest economy. If the exchange rate is adjusted to 1:2, China’s GDP will reach $30 trillion, equivalent to the total of the US’s $17 trillion and the EU’s $13 trillion, thus consolidating the international status of the renminbi.

I believe that many friends who have read this far may think this is crazy. In fact, this is not a fantasy. Let’s take a look at the trend of the exchange rate of the renminbi against the US dollar that I can find in historical records since 1957:

Just over 40 years ago, the exchange rate of the renminbi to the US dollar was 1.453, yes, at that time 1.453 renminbi could be exchanged for one US dollar. So 1:2 or 1:3 is not an unrealistic idea. From my personal experience, the purchasing power of the renminbi and the US dollar is roughly the same, that is, the price of the renminbi is about twice that of the US dollar (just looking at the numbers and not the exchange rate). In other words, if the Chinese and American price systems are basically equivalent, the reasonable range of the exchange rate between the renminbi and the US dollar should be between 1:2 and 1:3.

To sum up, the internationalization, digitalization, and appreciation of the renminbi are a trinity that supports each other, and one cannot be missing. As the slogan goes, “nothing is impossible”. As ordinary people, we are fortunate to live in such an interesting era. Although we are ignorant of the world and the universe, it doesn’t hurt to record a little of our own ignorance, which may offer a different perspective.

Take care~