The United States has once again raised interest rates, this time by another 25 basis points. However, our country's foreign exchange reserves have increased, having grown by 150 billion US dollars, equivalent to approximately 1,000 billion yuan.

For most of last year, the US continuously raised interest rates, suppressing the value of the Chinese yuan, as well as the exchange rates of non-US currencies. Our country's foreign exchange reserves were also affected by this suppression.

But entering the fourth quarter, it became evident that the US dollar could no longer be as dominant.

Now, the Chinese yuan has made a strong comeback, leading to a synchronized rise in global currencies and also driving a robust increase in foreign exchange reserves against the trend. During this process, China has continuously played a combination of strategic moves.

According to data provided by the United States, we have sold more than 100 billion US dollars in US debt for four consecutive months, coinciding with the growth of our country's foreign reserves for four consecutive months, exceeding 155 billion US dollars.

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It seems that this strategy has been effective.

01, The US Dollar is Depreciating

Yesterday, the State Administration of Foreign Exchange released the latest foreign exchange reserve data. Our country's foreign reserves have grown for four consecutive months and have now reached 3,184.5 billion, an increase of over 155 billion compared to the low point in September.

Looking back since the beginning of last year, our foreign exchange reserves have always been maintained above 3,000 billion US dollars, which has played a very good role in stabilizing our country's financial and economic environment.

In the past period, although there were times when the US dollar kept rising, causing a decline in non-US currency assets in our country's foreign exchange reserves, due to the high growth rate of our country's trade during the same period, especially the continuous expansion of the trade surplus, it has offset the risk of the decline in foreign exchange reserves.Starting from last November, the US Dollar Index has been on a decline from its high position, entering a phase of continuous devaluation. This is a favorable stimulus for non-US currency assets in foreign exchange reserves, helping to increase the total amount of foreign reserves. Coincidentally, in the past few months, the growth rate of our country's export trade has slowed down, once again offsetting the risk of a decline in foreign reserves.

The chart above shows the continuous decline of the US Dollar Index over the past three months, indicating that the dollar is clearly struggling.

02. The US Inflation Dilemma

Nowadays, despite continuous interest rate hikes, the situation in Europe and America has not shown significant improvement, especially as the United States is increasingly mired in difficulties and contradictions.

The Federal Reserve's rapid interest rate hikes, amounting to 450 basis points in less than a year, and there is a possibility of further increases of more than 75 basis points in the coming period. However, even with these measures, the inflation in the United States has only shown a decrease in year-on-year data, with the month-on-month decrease not yet apparent.

The recent employment data, which has grown beyond expectations, is very likely to lead to a further increase in the average wages in the United States in the coming period, which has a high probability of driving US inflation to rise again.

Of course, the United States would also be happy to use this as a reason to continue raising interest rates, as the United States' harvest is not yet successful. Continuing to raise interest rates still holds the possibility of reaping benefits; once they give up on interest rate hikes, a backlash against the United States could occur.

But the problem is that repeated interest rate hikes could lead to another outcome: before a successful harvest can be achieved, the US economy could already be dragged into the quagmire. This is the most critical reason for the Federal Reserve's dilemma.

03. China is Not Afraid of Interest Rate Hikes

Should the Federal Reserve continue to raise interest rates in this scenario, causing the dollar to strengthen once again, it could potentially impact our foreign exchange reserves. However, the impact of such a shock would be very limited.We are continuously reducing our holdings of U.S. Treasury bonds to mitigate the impact of the U.S. dollar.

After a period of increasing our holdings of U.S. Treasury bonds in the middle of last year, we have recently been selling off for four consecutive months, reducing our holdings from $971.8 billion to $870 billion, a decrease of $101.8 billion.

Taking the first three quarters of last year, when the U.S. dollar index rose the fastest, as an example, the index soared from 95 at the beginning of the year to 114 at the end of the third quarter, leading to a significant decrease in the global scale of foreign exchange reserves.

Data provided by the International Monetary Fund shows that the cumulative decrease in the scale of foreign exchange reserves of various countries has reached $1.3 trillion, with a reduction of 10.2%.

In contrast, during this period, the decrease in China's foreign exchange reserves was less than 7%, demonstrating the resilience of our country's foreign exchange reserves and also reflecting the strong resilience of our country's economy. #Foreign Exchange Reserves#