7, is a magic number

Seven days a week and today is Friday.

Why the week is seven days, cannot be changed to 3 days or 5 days?

Whether it is 6 or 8, we Chinese are very fond of, six or six, eight or eight to send, cell phone number or license plate number with a few 6 or 8, that are particularly good numbers, to add extra money, as for the 7 in the middle, what is a thing?

Seven days a week, from the ancient two river valley people’s observation of the moon. They found that the moon from the half-moon to the full moon, and then from the full moon to the half-moon, the time is 7 days, so they defined 7 days as a cycle, and divided the month into four cycles. Many people may not know that our Chinese “lunar calendar”, in fact, the earliest is also the lunar calendar, at first also the same 28 days, but our ancestors later found that this lunar calendar, if stretched to see, can guide agricultural production, but always a little bit (because the cycle of the earth around the sun is only “year”, this and the moon’s cycle does not have much to do with), so, each month to add 1 or 2 days, and then with the twenty-four festivals, called the “lunar calendar”.

With the moon, the number 7, immediately up to the gods.

For example, the Big Dipper has 7 stars, music has 7 sounds, the rainbow has 7 colors, the earth has 7 continents, people have 7 orifices, and even ladybugs know to grow 7 points.

Chinese fairy tales have 7 fairies, Western fairy tales have 7 dwarfs; in Christianity, people have seven sins, but also corresponds to the seven virtues, the land of goodness has seven heavens; and in Buddhism, the pontoon has seven levels; ancient Greece has seven sages, ancient Chinese to learn the seven arts; Jin Yong’s novel Wading has seven warriors, Joanna has seven monsters, the most famous disciples in the Quanzhen religion is also seven sons, and even, even Wei Xiaobao married his wife are married to seven ……

After the Arabs introduced the 10 numbers 1234567890 from India, they discovered some of the magical properties of 7.

7 is the largest prime number in the single digit (neither 8 nor 9 are prime), and if you divide 7 by any other number, you get a string of infinite cyclic decimals in a transformed order.

1/7=0.142857;

2/7 = 0.285714.

3/7=0.428571.

4/7=0.571428.

5/7=0.714285.

6/7=0.857142.

8/7=1.142857.

9/7=1.285714.

Even human chemists, in order to assess the degree of acidity and basicity, invented the PH value, using 7 as the middle value, indicating that in this case the solution is neither acidic nor basic, but “neutral”.

Now, even the exchange rate of our Yuan against the U.S. dollar has once again come to around 7.

I have written several articles on the RMB exchange rate, and luckily, I got almost all of them “right” in terms of timing, so I was asked to analyze it again when it recently appreciated to around 7.

RMB: The End of Appreciation

Is there any depreciation pressure on the RMB?

The Yuan, this time again, is “no depreciation base”?

Why should the foreign exchange reserve be lowered when the Yuan is depreciating?

The devaluation of the Yuan is nearing its end.

As long as China’s policy of “managed floating exchange rate” remains unchanged and China’s foreign exchange reserves are at a high level, the most important factor influencing the exchange rate movement of the RMB against the USD is the spread between the US and Chinese treasury bonds.

Regarding the relationship between the US-China Treasury spread and the RMB exchange rate, I have analyzed the ten-year, five-year and two-year Treasury spreads, and overall, the five-year and two-year Treasury spreads have a stronger correlation with the RMB exchange rate.

Using historical data on the five-year and two-year Treasury spreads and the offshore RMB exchange rate, based on their correlation, I have built two less rigorous models to roughly estimate the RMB exchange rate corresponding to different Treasury spreads, as shown in the table below.

Now, let’s look at the Chinese and U.S. five-year and two-year Treasury yields.

The current five-year Treasury spread between China and the U.S. is around 1%, while the two-year Treasury spread is around 2%.

Obviously, no matter which Treasury spread model is followed, the current reasonable value of the offshore RMB exchange rate should actually still be around 7.2, however, the actual current offshore RMB exchange rate has come to around 7.

Conversely, if we follow the current market’s actual offshore exchange rate, it would be more reasonable to maintain the spread between China and the U.S. Treasury bonds around 0.

Let’s just say that the market is running too fast and may have already factored in the Fed’s expected rate cuts over the next year – note that they are rate cuts, not rate hikes – and is expected to bring the US Treasury spreads close to China’s after the rate cuts.

In this sense, the current RMB exchange rate is actually somewhat overvalued.

Of course, as I wrote in my previous article, Treasury spreads, although the most important influencing factor, are not the only influencing factor for the RMB against the exchange rate – the reason for the recent rapid appreciation of the RMB exchange rate, on the one hand, is that the US dollar is also depreciating significantly against other currencies such as the euro, yen and pound in the past two days, and on the other hand, also take into account the economic vision brought to the market by the liberalization of China’s epidemic sealing control.

However, as long as the Fed does not really open the pace of interest rate cuts, regardless of whether it is a ten-year, five-year or two-year Treasury bond, U.S. Treasury yields of all maturities are now significantly higher than China’s, in which case the appreciation of the RMB exchange rate to around 7, within six months, may be just about right.

To some extent, in the next six months, for the RMB to USD exchange rate, the number 7, most likely, will be a pivotal point for the RMB exchange rate, just like the PH value, which is nothing more than a point around which it fluctuates.

 

 

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