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Why is it better to earn 4% in USD than 10% in RMB?


There was high inflation first, before being forced to raise interest rates, and financial institutions would never volunteer to be charitable. As an investor yourself, or as a financial advisor, have you encountered a similar situation:

The CEO of a state-owned enterprise has been doing domestic trust financial products for years, and when it comes to the allocation of overseas U.S. dollars, the expected rate of return is more than 10%, and to be absolutely safe. A business owner who has been deflating for years, and has expectations for dollar gains, frankly says 20% is sloppy and 50% is best.


Having spent so much time in China's distorted market environment, mainland investors completely fail to understand the basics of the U.S. dollar world. Immersed in the illusion of high yield, high yield is high devaluation essentially. First, there is high inflation, before being forced to raise interest rates, financial institutions will never do charity to high-interest rates; on the other hand, low inflation corresponds to low-interest rates, which is a true hedge against inflation.


The interest rate essentially = inflation + cost of funds + risk factor.

If you find that the market is full of products with high-interest rates, be very wary. Because inflation is definitely high, money is grossing up even faster, and the standard of living will drop rapidly if you are not careful to invest in the wrong place.

This inflationary burnout is felt most by the hard-pressed masses who hold money and are becoming unable to afford a home.

Don't be too quick to rejoice with the interest rate on your account, after deducting inflation; what's left is the true income. According to the World Bank, even though China has "processed" out many of the price escalations factors (e.g., housing prices are not included in the CPI), inflation is still much higher than the United States.


The RMB World

Inflation on the China Mainland and its statistical malfunction was caused by the "benevolent" removal of sensitive factors such as house prices. If you refer to the rate of house price inflation, there has been 8-10% in recent years, and interestingly, the rate of devaluation of the RMB against other major national currencies last year was also about 8-10%.

When high yield are deducted for inflation, you may find that despite high-interest rates, the more you earn, the more you lose.

6-8% on the Account minus 8-10% inflation = negative real returns.


The dollar world

Inflation in the U.S. is relatively standard, combining house prices, consumer goods, and other types of data. 3% or more inflation is severe inflation, which requires the government's full attention, and inflation figures generally remain at 1-2% for years.

5-6% on the Account minus 1%-2% inflation = positive long-term returns.

In everything, we should look from its inside not only the prestige, therefore it's better to have more of your own money.

A Greek government bond is over 90%. Would you buy it for your prestige? China's inflation was over 10% in the ‘80s and ‘90s and bank deposit rates could give 9% for the same period, but were they happy?

So the high yield tableau is meaningless and needs to be squeezed out of inflation in order to get real value growth.

When it comes to financial management in China, it's far more important to put your money into asset classes that follow trends than to obsess about earning 1% more or less. And in the US dollar income system, we simply choose standard assets based on our risk appetite, much simpler.

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