After touching a new low of 7.0188 Yuan per dollar in September 2022, the offshore exchange rate between China's fiat currency and the U.S. dollars recently crossed the 7:1 mark. The strengthening of the U.S. Dollar is driving the yuan's fall, just like other global currencies which have declined in 2022.
The Yuan's Decreciation
After trading at 7.0188 on September 15, 2022, the offshore exchange rate between the Chinese currency and the U.S. dollars broke the seven RMB mark per dollar mark. This marks the first time that the exchange rate between the currencies has exceeded this threshold in more than two years. The yuan's onshore exchange rate was not affected by the 7:1 threshold.
According to the Economic Times, the dollar strengthening is behind the yuan's decline in value against the greenback. The decline of the currency was also caused by growing concerns that China's economy might be slowing.
The report reveals that the Chinese central bank attempted to help the economy by cutting the interest rate in August, but this only led to a 3% decline in the yuan.
Ken Cheung, chief Asian FX strategist for Mizuho Bank, commented on the current dilemma facing the People's Bank of China.
The PBOC has shown its support for the RMB exchange rate not breaking [the] 7 handle soon and a rate reduction will be in contradiction to such objective.
Another report quotes Cheung as saying that he believes the PBOC has lost interest in stopping the currency breaking 7 yuan per dollar but will instead try to "delay" and "smooth out the yuan's depreciation rate."
The Surging Dollar
According to the Economic Daily report, the weaker dollar isn't the only currency that is hurting the yuan. The report also states that authorities in Japan are concerned about the strengthening dollar. Since January 2, 2022, the exchange rate between currencies has moved from 115 to 1 to over 143 to 1.
The euro, the single currency of the European Union, traded at EUR0.88 per dollar in the beginning of the year. However, by August 21, 2022 it had reached parity with its greenback counterpart. Other currencies, with the exception of the Russian ruble and the Zambian kwacha, have struggled to compete against the dollar.
Economists think that the reason why the dollar has gained in value against other currencies could be due to the U.S. Federal Reserve's efforts to lower the U.S. inflation rate through regular marginal increases of interest rates.
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Frequently Asked Questions
How does gold perform as an investment?
The price of gold fluctuates based on supply and demand. Interest rates can also affect the gold price.
Due to limited supplies, gold prices are subject to volatility. Additionally, physical gold can be volatile because it must be stored somewhere.
Can I have a gold ETF in a Roth IRA
A 401(k) plan may not offer this option, but you should consider other options, such as an Individual Retirement Account (IRA).
An IRA traditional allows both employees and employers to contribute. An Employee Stock Ownership Plan (ESOP) is another way to invest in publicly traded companies.
An ESOP gives employees tax advantages as they share the stock of the company and the profits it makes. The money you invest in the ESOP will be taxed at a lower rate than if it were directly held by the employee.
You can also get an Individual Retirement Annuity, or IRA. An IRA lets you make regular, income-generating payments to yourself over your life. Contributions made to IRAs are not taxable.
How much money should I put into my Roth IRA?
Roth IRAs let you save tax on retirement by allowing you to deposit your own money. These accounts are not allowed to be withdrawn before the age of 59 1/2. However, if your goal is to withdraw funds before that time, there are certain rules you must observe. First, you cannot touch your principal (the original amount deposited). No matter how much money you contribute, you cannot take out more than was originally deposited to the account. If you take out more than the initial contribution, you must pay tax.
You cannot withhold your earnings from income taxes. So, when you withdraw, you'll pay taxes on those earnings. Let's suppose that you contribute $5,000 annually to your Roth IRA. Let's also assume that you make $10,000 per year from your Roth IRA contributions. The federal income tax on your earnings would amount to $3,500. The remaining $6,500 is yours. Since you're limited to taking out only what you initially contributed, that's all you could take out.
So, if you were to take out $4,000 of your earnings, you'd still owe taxes on the remaining $1,500. You'd also lose half the earnings that you took out, as they would be subject to a second 50% tax (half of 40%). So even though your Roth IRA ended up having $7,000, you only got $4,000.
Two types of Roth IRAs are available: Roth and traditional. A traditional IRA allows you to deduct pre-tax contributions from your taxable income. When you retire, you can use your traditional IRA to withdraw your contribution balance plus interest. You have the option to withdraw any amount from a traditional IRA.
Roth IRAs won't let you deduct your contributions. However, once you retire, you can withdraw your entire contribution plus accrued interest. There is no minimum withdrawal limit, unlike traditional IRAs. You don't need to wait until your 70 1/2 year old age before you can withdraw your contribution.
Can the government steal your gold?
You own your gold and therefore the government cannot seize it. You worked hard to earn it. It is yours. This rule may not apply to all cases. If you are convicted of fraud against the federal government, your gold can be forfeit. Also, if you owe taxes to the IRS, you can lose your precious metals. However, if you do not pay your taxes, you can still keep your gold even though it is considered property of the United States Government.
What precious metal should I invest in?
This question depends on how risky you are willing to take, and what return you want. Gold is a traditional haven investment. However, it is not always the most profitable. Gold may not be right for you if you want quick profits. If patience and time are your priorities, silver is the best investment.
Gold is the best investment if you aren't looking to get rich quick. Silver might be a better investment option if steady returns are desired over a long period of time.
Can I buy gold with my self-directed IRA?
However, gold can only be purchased with your self-directed IRA. To do so, you must first open a brokerage account at TD Ameritrade. You can also transfer funds from another retirement account if you already have one.
The IRS allows individuals contributing up to $5.500 each ($6,500 if married, filing jointly) into a traditional IRA. Individuals may contribute up to $1,000 ($2,000 if married, filing jointly) directly into a Roth IRA.
If you do decide you want to invest your money in gold, you should look into purchasing physical bullion instead of futures contracts. Futures contract are financial instruments that depend on the gold price. These contracts allow you to speculate on future gold prices without actually owning it. But physical bullion refers to real gold and silver bars you can carry in your hand.
- (Basically, if your GDP grows by 2%, you need miners to dig 2% more gold out of the ground every year to keep prices steady.) (smartasset.com)
- If you take distributions before hitting 59.5, you'll owe a 10% penalty on the amount withdrawn. (lendedu.com)
- If you accidentally make an improper transaction, the IRS will disallow it and count it as a withdrawal, so you would owe income tax on the item's value and, if you are younger than 59 ½, an additional 10% early withdrawal penalty. (forbes.com)
- Contribution limits$6,000 (49 and under) $7,000 (50 and up)$6,000 (49 and under) $7,000 (50 and up)$58,000 or 25% of your annual compensation (whichever is smaller) (lendedu.com)
- The price of gold jumped 131 percent from late 2007 to September 2011, when it hit a high of $1,921 an ounce, according to the World Gold Council. (aarp.org)
- Gold IRA – Add Sparkle to Your Retirement Nest Egg
- Understanding China's Evergrande Crisis – Forbes Advisor
How to keep physical gold in an IRA
The easiest way to invest is to buy shares in companies that make gold. This method is not without risks. There's no guarantee these companies will survive. Even if they do survive, there is still the possibility of losing money to fluctuating gold prices.
You can also buy gold directly. This requires you to either open up your account at a bank or an online bullion dealer or simply purchase gold from a reputable seller. These options offer the convenience of easy access, as you don't need stock exchanges to do so. You can also make purchases at lower prices. It's also easy to see how many gold you have. So you can see exactly what you have paid and if you missed any taxes, you will get a receipt. You're also less susceptible to theft than investing with stocks.
There are however some disadvantages. Bank interest rates and investment funds won't help you. You won't have the ability to diversify your holdings; you will be stuck with what you purchased. Finally, the tax man might ask questions about where you've put your gold!
BullionVault.com has more information about how to buy gold in an IRA.
By: Terence Zimwara
Title: Chinese Currency Breaches 7:1 Exchange Rate Against US Dollar for First Time in Two Years
Sourced From: news.bitcoin.com/chinese-currency-breaches-71-exchange-rate-against-us-dollar-for-first-time-in-two-years/
Published Date: Wed, 21 Sep 2022 07:30:08 +0000