The world is facing a major inflationary crisis, primarily due to the "flood" of monetary measures taken by central banks around the world after the pandemic, which involved massive money printing to stimulate the economy.

Two years on, the side effects of this large-scale "flood" have become another thorny problem, which is high inflation.

Currently, high inflation has become a "tiger in the way" of economic growth in various countries, especially in the United States, where inflation has reached a 40-year high.

Generally speaking, under inflation, the currency should depreciate, but the US dollar has not only not depreciated but has continued to strengthen, while other currencies have depreciated to varying degrees.

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According to official data released by the United States, the CPI increased by 8.3% in August, with inflation remaining high and core inflation data still growing, indicating that the inflation in the United States is at a high level.

Subsequently, the Federal Reserve announced a 75 basis point interest rate hike on September 21 to curb the rise in inflation.

Since the inflation in the United States is at a high level, there are a lot of dollars in the market.

According to economic theory, the dollar should depreciate, but it has been appreciating.

Why is that?

After the Federal Reserve announced an interest rate hike this month, the US dollar index continued to rise, reaching 113.1, the highest level in nearly 20 years.

At the beginning of 2022, the US dollar index was around 94, and now it has risen to 111, an increase of more than 17%.

It can be seen that the pace of the US dollar's appreciation has not stopped.

The US dollar is the core of the global monetary system, which was established in the Bretton Woods system after World War II.

The currencies of various countries are pegged to the US dollar, and the US dollar is pegged to gold.

Later, due to insufficient gold reserves, the US dollar was directly anchored to oil, deeply linked with oil, and the international status of the US dollar has continued.

The high inflation in the United States and the appreciation of the US dollar do coexist and are not contradictory.

The appreciation of the US dollar is mainly external, and it is appreciated against the currencies of other countries, while it is depreciated internally.

Due to the United States being a typical trade deficit country, imports are often greater than exports.

After the Federal Reserve raised interest rates, global dollars returned to the United States to avoid risks, and the US dollar strengthened and appreciated.

Due to the appreciation of the US dollar, the United States can buy goods from other countries at a much cheaper price.

Cheap imports, sold to domestic consumers, are also cheaper, which is very beneficial for reducing prices.

The impact of the Federal Reserve's interest rate hike on the global financial market is very obvious.

Since this month, the renminbi has broken through 7, and then the renminbi has fallen below 7.15.

Currently, the exchange rate of the US dollar to the renminbi is 7.1582.

Since March this year, the offshore renminbi has depreciated for more than half a year.

At the same time, the interest rate hike by the Federal Reserve has also raised the yield on US Treasury bonds, and the interest rate spread has inverted, forcing foreign capital to return to the United States, and the renminbi has depreciated.

However, looking at the global range, the depreciation of the renminbi is relative to the US dollar, and compared with the British pound, the euro, the yen and other currencies, the renminbi is in an appreciation trend.

The renminbi has appreciated more than 8% against the British pound so far this year, and the exchange rate against the yen has appreciated more than 14%.

In response to the continuous depreciation of the renminbi against the US dollar, the central bank finally took action!

On September 26, the central bank decided to increase the foreign exchange risk reserve ratio for forward foreign exchange sales from 28 to 20%, and then the offshore renminbi against the US dollar rose by 300 points.

Not only that, the central bank also carried out reverse repurchase operations, with a net injection of more than 130 billion yuan.

Under the big background of the US dollar interest rate hike, although the US dollar is continuously strengthening, the risks behind it cannot be ignored.

More and more economists believe that a risk comparable to the 2008 financial crisis is on the way.

Moreover, the scale of US Treasury bonds is approaching 31 trillion US dollars, and the huge debt volume has accelerated this risk.

Therefore, this year, central banks of various countries have reduced their holdings of US Treasury bonds.

However, according to the official data of the US Treasury Department, China actually increased its holdings of US Treasury bonds by 2.2 billion US dollars in July this year (the data is delayed, and the data for this month will be announced in November).

It should be noted that China has sold US Treasury bonds for seven consecutive months, and the amount of reduction in a single month is at the level of tens of billions of US dollars.

Why did China increase its holdings of US Treasury bonds in the short term?

According to experts, China's increase in holdings of US Treasury bonds this time is not an active increase, but an increase in valuation due to the decline in the yield of US Treasury bonds.

In July, the yield on 10-year US Treasury bonds fell to 2.75%, and the yield fell sharply, while the price of US Treasury bonds rose, so the scale of China's holdings of US Treasury bonds increased "passively".

In fact, the increase of 2.2 billion US dollars in holdings is not very meaningful for China.

China currently holds 970 billion US dollars in US Treasury bonds.

Under the big background of the Federal Reserve's interest rate hike, returns, prices, and market changes are all factors to consider.

Looking at the holdings over the past year, China has been reducing its holdings of US Treasury bonds on the whole.

As China's overseas asset allocation becomes more diversified in the future, reducing its holdings of US Treasury bonds is a major trend, and China's holdings of US Treasury bonds will eventually be reduced to a reasonable range.