Who Wins The RMB Versus The US Dollar? Who Wins In Hongkong?

As an offshore financial center, Hongkong is facing more than just the test of the importation or flow of the traditional international currencies such as the US dollar, the pound and the yen. It will also face the test of the huge Renminbi inflow in the mainland of China as the world's largest currency issuer.

If the capital account is open, Hongkong, as an offshore financial center, will face the test of the huge Renminbi inflow in the mainland of China as the world's largest currency issuer.

Soros sniper

Financial markets have been in the past 20 years.

The defeat of Soros in the year was largely due to the implementation of foreign exchange control in the mainland of China and the mobilization of foreign exchange reserves to the south.

But in the future, if China liberalising capital account, the huge amount of RMB funds will enter the Hongkong market, and just like Soros and other snipers, who will win the RMB against the US dollar in Hongkong?

Soft link of linked exchange rate system

The Hongkong area has adopted the linked exchange rate system since 1983. There are three bank note issuing banks, each issuing HK $7.8, which requires us to surrender $1 to the Hongkong monetary authority as the issuing bond. At the same time, the Hongkong monetary authority undertakes to buy US dollars (strong exchange guarantee) from licensed banks at the level of HK $7.75 to HK $1, and to sell the US dollar (weak exchange guarantee) to licensed banks at the level of HK $7.85 to US $1.

Why is the HKMA able to control the market of the linked exchange rate formation mechanism? Because the Hong Kong dollar issue is mastered by the Hongkong monetary authority, and the amount of US dollars used in the market is based on Hong Kong dollars.

Of course, the HKMA can also deliver HK dollars to the market in excess (unlimited volume), but only if the US dollar with 1:7.78 ratio is in hand.

The anchor currency issued by the US dollar is issued by the US Federal Reserve. Then the dollar matching the Hong Kong dollar is not what the Hongkong monetary authority can grasp. Therefore, the US dollar flowing into Hongkong is a variable.

Of course, the dollar in Hongkong exists in the form of deposits, partly by the government, institutions and individuals in Hongkong. It is part of Hongkong's assets and the other is borrowed or international hot money, which is Hongkong's liabilities.

This system seems to be seamless, but it actually concealed murder.

The problem is at the mercy of the part of the US dollar that the Hongkong authorities have put in the Hong Kong dollar.

This part of the US dollar is the currency issue reserve fund, which is now part of the foreign exchange fund. It amounts to hundreds of billions of dollars. If it is all put as a deposit in the bank, and it needs to pay for the market exchange, it must be very bad, because the interest rate has been very low since the US Federal Reserve cut interest rate in 2008.

It will not be possible to invest this part of the US dollar in fixed income with high returns. If the market is selling Hong Kong dollars to chase the US dollar, the investment in this part of the fixed assets of the HKMA can not be immediately realized, and then there will be a payment crisis.

It is precisely because the variable of the US dollar entering and leaving Hongkong is uncertain, which is not controlled by the Hongkong monetary authority, which left a possible gap for the Hongkong monetary authority to maintain its fixed exchange rate.

The right way to do this is to deposit interest free deposits at a premium, and finance terms are called positions.

In the stock market, we should put aside some of the Treasury bonds and share the direct investment with high yields, so that we can take into account the principles of asset safety, liquidity and profitability.

But the market is changing rapidly and flows into Hongkong.

It is a variable that is difficult to grasp. If this variable was exchanged in advance by a large number of Hong Kong dollars in a certain period of time at a certain time and then concentrated in another time, the Hongkong monetary authority would lose its position in dealing with the market, and the investment in other high-yield part of the exchange fund would not be realized. This is the crisis of the linked exchange rate system, or the liquidity crisis.

However, if the exchange rate is not satisfied, the exchange rate of the market will break through the upper limit of 7.78, then the linked exchange rate mechanism between the US dollar and the Hong Kong dollar will collapse.

The consequence is that the Hong Kong dollar is like a small boat anchored in the wind and waves. The currency has depreciated sharply, and the stock market, bond market and futures market have fallen sharply. The prices of movable and immovable property expressed in Hong Kong dollars will be revalued. The whole economy is in chaos, that is, the financial crisis has exploded.

There were two major factors in Soros's defeat in Hongkong. One was that the central government at that time was not worried about the RMB exchange rate being attacked by international speculators. It could be relieved to mobilize huge amounts of foreign exchange reserves to mobilize huge amounts of foreign exchange reserves to finance the financial crisis in Hongkong. Secondly, in the Southeast Asian financial turmoil, the international speculators' battle line was too long and was implicated in the time of the Russian debt crisis. LTCM, the long-term capital management company of the United States, was on the verge of bankruptcy, triggering a chain reaction in the capital market, causing the backfire of the quantum fund to be on fire.

RMB going south

If China's capital account is to open up in the future, suppose that 10 trillion yuan of huge renminbi will enter the Hongkong market by investment or speculation. Because its holders are non residents, the currency stock in the Hongkong market will now be 10 trillion yuan plus 10 trillion Hong Kong dollars (that is, the equivalent foreign currency denominated in Hong Kong dollars).

However, the prerequisite for the HKMA to put Hong Kong dollars in Hongkong is to absorb the equivalent amount of US dollars. Therefore, it is necessary to introduce us $10 trillion in US dollars (as an intermediary currency for exchange) into Hongkong.

Of course, the major commercial banks in Hongkong, as the exchange intermediaries between RMB and Hong Kong dollar, can immediately borrow the equivalent amount of US $10 trillion from the overseas market to exchange the Hong Kong dollar to the Hongkong monetary authority, so as to complete the exchange between RMB and Hong Kong dollars.

At the moment, the first 10 trillion Hong Kong dollars are held by Hongkong residents; second 10 trillion Hong Kong dollars are held by the Chinese mainland residents; third 10 trillion of the Hong Kong dollar are equal to the US dollar in the Hongkong monetary authority.

As a result, the total amount of money in the whole region of Hongkong reached US $40 trillion or US dollar.

There will also be another situation. The 10 trillion yuan of Chinese residents will be converted into Hong Kong dollars into the Bank of Hongkong, while the Commercial Bank of Hongkong will exchange the RMB 10 trillion yuan from the exchange to the Bank of China group of Hongkong (instead of borrowing overseas dollars), because the Bank of China is the RMB clearing bank of the Central Bank of China in Hongkong, and the Bank of China will receive 10 trillion yuan in the same amount of RMB when it gets the 10 trillion yuan. Of course, the US dollar comes from the people's Bank of Shenzhen (which is the reflux channel of the RMB in Hongkong), so it is equivalent to the equivalent amount of RMB 10 trillion of the foreign exchange reserve of the country.

So the Commercial Bank of Hongkong got the equivalent amount of 10 trillion yuan after it acted as currency exchange broker, and handed it to the HKMA for HK dollars.

The same result is that the Hongkong market has 20 trillion Hong Kong dollars and other currencies plus 20 trillion equal Hong Kong dollars, which are in the hands of Hongkong commercial banks or the Hongkong monetary authority.

It is assumed that the RMB exchange process carried out in the southern part of Hongkong is in an orderly manner, and has not had a huge impact on Hongkong's financial market.

On the other hand, we can reasonably assume that when these non residents entering Hongkong get HK $10 trillion, they suddenly want to convert the Hongkong monetary authority into US dollars.

Also faced with a serious test.

Incidentally, when the above 10 trillion yuan came to Hongkong, Soros and her partners in the United States also attacked the US dollar equivalent to 10 trillion Hong Kong dollars. Then, the Hong Kong residents had HK $10 trillion, the equivalent of 10 trillion Hong Kong dollars in the south, the 10 trillion dollar of the Hong Kong dollar in the commercial bank, the equivalent of the US dollar in the Hongkong monetary authority, which was already in the Hongkong monetary authority as the reserve currency of 10 trillion, and the equivalent of 10 trillion Hong Kong dollars in the US dollar. At the moment, the total currency market in Hongkong was HK $30 trillion.

The total market money at that time is no different from the 30 trillion Hong Kong dollars. The right amount of the US $10 trillion, which Soros brought in, was used as a medium of exchange between the RMB and the Hong Kong dollar and entered the Treasury of the Hongkong monetary authority. But the major difference is that the holders of the 10 trillion equal Hong Kong dollar are Americans, not the US dollars borrowed by the commercial banks.

According to the data released by the people's Bank of China, the total amount of money in the mainland of China (M2) is 150 trillion yuan, of which 80 trillion yuan for residents and 70 trillion yuan for enterprises.

A conservative estimate is that 1/15, or 15 trillion yuan, is likely to flow into Hongkong after capital controls are cancelled.

On the other hand, the quantum fund of Soros and his partners has 10 trillion US dollars in Hong Kong dollars, which is equivalent to 1 trillion and 300 billion US dollars at the 1:7.8 exchange rate. Does the European and American hedge funds really have so many chips? The data show that the world's number one fund is Bridgewater Pure Alpha, and the current management scale is 82 billion 300 million US dollars.

The second is the quantum fund managed by Soros, which currently manages 29 billion US dollars.

When needed, leverage investment can be achieved by means of leverage financing.

According to the Barron weekly, eVestment, the US fund database company, said that the total assets of the hedge fund industry in the United States were over $3 trillion for the first time in history.

EVestment predicts that the asset size of the hedge fund industry is expected to soar to $5 trillion and 800 billion in 2018.

War game of duel

In response to Trump's remarks that he would impose 45% tariffs on Chinese exports after taking office, Ross expressed different views. He said, "reducing China's balance of payments deficit does not mean a 45% tariff on all goods from China".

After the election, Ross said to Yahoo Finance, "everyone says that Trump will impose a 45% tariff on all Chinese products." Finance said.

But he did not say so, nor did he intend to do so.

Bai Ming analysis, Ross as the Minister of Commerce, embody the voice of the White House economic policy is still not free from the impact of Wall Street.

Ross has been engaged in the acquisition and reorganization of steel and textile manufacturing industry in Wall Street for many years. We should understand that in recent years, the crux of Wall Street lies in the over development of the virtual economy and the lack of support from the entity manufacturing industry.

Therefore, Ross suggested that it is advisable for Trump to expand the infrastructure construction.

Ross also has a disagreement with Trump, that is, his attitude toward China's trade policy.

In order to attract voters, Trump will put forward some exaggerated campaign slogans, such as levying a 45% tariff on Chinese goods. But after the election, he will consider China's huge market and adjust the Sino US trade policy from the national interest of the United States.

The responsibility for this trade-off falls on the Minister of Commerce. What tariffs do we impose on which products in China are not necessarily 45% of what Trump said.

It is foreseeable that the future confrontation between the Hongkong government and foreign currency speculative funds will inevitably drag the foreign exchange reserves of the Central Bank of China into the war.

At present, the RMB deposits in the Hongkong market have been reduced to around 700 billion yuan, which is easy to handle. The Bank of China (601988) can use 100 billion US dollars to suck up these stock currencies.

However, if the capital account is open to Hongkong after 10 trillion yuan is opened, the Central Bank of China has to pay $1 trillion and 200 billion to deal with it.

Although the country's foreign exchange reserves are still high, the amount of cash to deal with convertible bonds is about $1 trillion and 200 billion.

However, the above assumption has not accounted for the total external liabilities of China's foreign debt and foreign investment.

If at this critical moment, when foreign capital is withdrawn and foreign debts are paid, if the two pieces add up to 1 trillion US dollars for payment, then the position of China's foreign exchange reserves will not be enough, and foreign assets must be sold to repay debts.

This is the most difficult situation, but it is also possible.