Will Vietnam be the first leek to be harvested as a dollar hike looms?
In the modern financial system, the central bank is at the core of the entire national financial system.Responsible for the formulation and implementation of the country’s monetary policy, has the power to create money, and oversees the operation of the country’s financial system.One of the most common policy tools used by banks is to adjust interest rates to keep the economy running.However, in the current world market, each country often adopts the policy of raising and reducing interest rates to adjust its import and export and national economic level for its own interests.In order to maintain its own economic interests, the United States, as the global economic hegemon, will adopt interest rate policy to meet its own economic needs.While some time ago, the Federal Reserve to raise interest rates, then Vietnam will be the first to be harvested leek?Before the Second World War, although the United States was already an economic power in the world, it did not have today’s international status at that time, and the DOLLAR was not the world currency at that time.The currency of choice in the world was the British pound or the French franc, the old capitalist powers.But World War II opened the way for the rise of the United States.During the Second World War, because the United States was located in The Americas beyond the ocean, the United States was not affected by the war when the European war was fierce. Moreover, the United States made a fortune by selling arms and weapons between the two groups.Moreover, at that time, the European battlefield was extremely fierce, and Nazi Germany brutally persecuted a number of outstanding scientists, resulting in many outstanding talents fleeing to the United States.So after the end of World War II, the United States has become the world’s superpower.According to statistics, after the end of world War II, the total amount of gold in the United States accounted for more than 70% of the total amount of the capitalist world, so the United States had more say in the world economy.In July 1944, during the second world war is the eve of the victory, Allies, led by the United States held the meeting in bretton woods, New Hampshire, the meeting adopted “white plan” officially formed in the United States “the bretton woods system”, the dollar and gold, the world currency pegged to the dollar, officially confirmed the dominance of the dollar,The dollar became the world’s common currency and was accepted around the world.Second, what is “interest rate hike”?A rate hike is when the central bank raises the interest rate on its own currency.So what is the impact of raising interest rates on the economy and society?For the interest rate policy, it can absorb deposits for commercial banks, reduce the money supply in the market, reduce inflation and suppress the overheated consumption in the market. Therefore, the interest rate policy is often used when the economy is overheated.So what will interest-rate hikes do for the world’s financial markets?Raising interest rates means raising interest rates on your own currency, which often leads to a flood of currency inflows around the world (because of higher yields), followed by a rise in your own currency.So especially for the DOLLAR, if the Fed announces an interest rate hike, it will be a big shock to the world currency markets.The first is a flood of foreign currency into the US, and it becomes even more troublesome when countries hold large amounts of foreign debt in dollars.Since a rising dollar naturally depreciates relative to the value of other currencies, countries with large foreign debts in dollars, such as Vietnam, are likely to be cut.$3, Vietnam has a lot of debt because the dollar is the currency of the world general, and in the dollar hegemony, also set up many barriers to trade, such as in the current general trading in the world, oil trading, for example, many countries want to buy oil usually require currency conversion into dollars first, and then buy oil in dollars,The transaction is not completed until dollars are converted into local currency.In this transaction mode, many countries will borrow a large amount of foreign debt in USD, especially for emerging countries. As their own economy needs development and a lot of energy, these countries have to borrow a large amount of foreign debt in USD to develop their own economy.Vietnam is an obvious example. According to statistics, by 2021, Vietnam’s foreign debt in DOLLARS has exceeded 130 billion DOLLARS, accounting for about half of the country’s total GDP.COVID – 19 outbreak in 2020, due to the outbreak of the impact on the economy, and then in response to the outbreak of the United States affect stimulate domestic consumption and export, $for a lot of interest, and represented by Vietnam in the emerging countries see so cheap dollars, plus domestic economic development dynamics is insufficient, have borrowed a lot of dollar debt, it also caused the today’s situation.What is the important impact of a higher dollar rate on countries that have borrowed heavily in dollars?It will probably cause the following chain reaction.First, because of the policy of raising interest rates in the dollar, these countries tend to have to borrow in dollars at higher costs when they repay their debts.If they cannot borrow enough to repay their previous foreign debts, they will have to dip into their small foreign-exchange reserves, which will cause their currencies to fall sharply against the dollar.Then, due to the significant devaluation of the local currency against the US dollar, resulting in a large number of enterprises due to capital chain fracture and bankruptcy.In fact, this result is also obvious. For example, if the domestic currency exchange rate against the DOLLAR was 5:1 before the devaluation, the enterprise borrowing $1 million of foreign debt needs 5 million of local currency.But if the currency exchange rate depreciates to 8 to 1 against the DOLLAR, it will cost 3 million more local currency in repayment.And this more than 3 million local currency, for the enterprises of some emerging countries is difficult for them to accept, so the only way for enterprises to go bankrupt.Finally, the real economy took a big hit as companies in the country went bankrupt.And the prosperity of the financial system is based on the development of the real economy, once the country have a large number of corporate bankruptcies, so these companies to borrow their Banks are difficult to repay the debt, and this will lead to the collapse of the financial system, a large number of capital outflow, foreign capital to leave, so the United States make rich but they will be a fatal blow.Once Vietnam has an economic crisis, then European and American consortia should come quickly to occupy the Vietnamese market and take advantage of Vietnam’s superior resources. A large number of state-owned assets flow to the European and American markets, just like Thailand and Southeast Asia’s economic crisis in 1997.And these things also remind us that we should unswervingly promote the internationalization of the RMB, to provide security for our international trading enterprises and domestic manufacturing industry.To improve China’s international status, break the hegemony of the US dollar, make the RMB get rid of the influence of the US dollar, ensure China’s foreign exchange security, ensure the import of strategic resources, and escort the development of China’s economy and society.Finally, I would like to ask you, how do you view the us dollar interest rate rise?