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Following the unknown route: The world in searching of dollar substitute

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The ongoing escalation of trade wars and competition among the world’s top economies makes it imperative to consider institutionalizing several currency zones to form a sort of currency “multipolarity”.

The forthcoming “currency multipolarity” became the subject of disputes in the 1990s, after the launch of a project to create a EU currency. Robert Mundell, the author of Optimum Currency Areas and winner of the Swedish National Bank’s Nobel Memorial Prize in Economic Sciences, predicted in 2000 that by 2010 the euro would cover at least 50 countries. The dollar would de facto become a common currency for Latin American countries, while Asia would move towards a currency area under the aegis of the Japanese yen. Being within such zones, under the cover of strategic alliances, countries can carry out a coordinated currency policy and put up a joint resistance to market fluctuations.

However, the history of a battle between the euro and the dollar has turned out to be controversial. On the one hand, by 2019 the euro had made a tangible contribution to the weakening of the positions of the US dollar in global economy. According to the European Commission, at that time one fifth of global currency reserves were linked to the single European currency. «340 million people use it on a daily basis, 60 countries and territories link their currencies to it».

On the other hand, sanctions and tariff strikes by the Trump administration  against nominal allies over the past two years have demonstrated that Europe is still highly dependent on the financial system which hinges on the US dollar. In general,  despite its successes of the past 20 years, the euro has yet to go beyond the “clearly set” boundaries of a regional currency.

Unexpectedly for many financial experts, the early 2010s saw the speedy arrival on the global financial and economic scene of China. According to The Economist, the results of 2019 say that yuan-denominated debt instruments outnumbered the pound, the euro and the Japanese yen. But not the dollar. The share of the dollar revolves around 52-55 percent throughout the years that have passed since the 2008 financial crisis.

In the course of the coronavirus crisis the Chinese bond market demonstrated the best resilience. By the end of the first six months capitalization of the market exceeded 14 trillion dollars, the world’s second position (capitalization of the US bond market is around 42 trillion dollars). The yields of the Chinese government’s bonds exceeded the American ones more than fourfold.

In recent years China has considerably strengthened its position of a world creditor, by far overtaking the USA. By early 2020, direct and trade loans, issued by Chinese state-run and privately owned businesses to more than 150 countries, exceeded 1.5 trillion US dollars. China has officially assumed the position of the world’s number one creditor, leaving behind the World Bank, the IMF, and the governments of OECD taken together.

A third factor that, according to the economic theory, must contribute to the promotion of national currency as a global one, is leadership in financial technologies. The Chinese financial technology is already one of the most advanced worldwide. At its disposal is the billion-worth market at home and nearly 2.5 billion people in “third world” countries which have no access to the  traditional financial services of western companies and banks.

Finally, a fourth factor facilitating the rise of national currency is the coronavirus pandemic, which provided a powerful impetus for millions of employees to switch to online work. Next to come were the financial services and Internet trade, in which China holds equally top positions. Beijing’s progress in dealing with the pandemic, along with an ever greater number of countries expressing distrust of the US policies, fuels interest in the yuan. Meanwhile, the transition of the USA and China to a “cold” financial, technological and economic war appears inevitable. All these factors combined create the prerequisites for currency division. According to Nihon Keizai Shimbun, “in a divided world it is extremely unadvisable for one currency to become a model one”.

Discontent over the current position of the dollar is felt inside the United States as well.  In May Foreign Affairs complained that the dollar, which has become very costly due to the influx of “superfluous” capital, is inflicting damage on the production sector, “eliminates” jobs in unstable states, aggravates political polarization inside the country. If the influx of capital into the USA continues to increase, “……it will be more and more difficult to ensure a balanced and even growth”. “ At some point the USA will have no choice but introduce restrictions on the import of capital in the interests of national economy – even if it means a voluntary rejection of the global supremacy of the dollar as a reserve currency”.

On August 27 the US Federal Reserve Service issued a statement on changes in its monetary and credit policy, which observers deem as “destruction” of the existing system. The new policy of the American Central Bank can be viewed as a signal of readiness for reconsidering the international role of the dollar in the direction of downgrading its stance.

Some experts believe, however, that an abrupt departure of the dollar from the position of a top global currency, including a “sudden” arrival of a fairly strong alternative reserve currency, can provoke a «large-scale economic crisis in China», «a fall of oil prices by several times», and a rapid reduction of “economic activity across the globe”.

In addition, any currency that claims a reserve status, even if at a regional level, will have to overcome several obstacles. The first one deals with the logic of economic entities. According to The Economist, one hypothesis maintains that denomination of prices in one currency, particularly on highly competitive markets, makes it possible for companies to avoid sharp fluctuations of prices compared to their competitors. The other assumption argues that using the same currency for both imports and exports protects against losses in case of denomination of national currency.

It is highly probable that it is these factors that explain correlation between the share of dollar and euro “blocs” in the global gross product (approximately 60 and 25%) with their share in currency reserves (in September 2014  — 60,7 and 24,2%). Also,  they account for “a relative stability of the volume of dollar currency reserves despite ……a reduction in the share of the USA in global economy in the past decades”. This logic can also explain the low percentage of yuan transactions in global trade. In different estimates, the share of payments in yuan in trade transactions made up 1.5-2 percent in early 2020.  For comparison, China’s share in global commodity trade is 10 percent.

The second obstacle has to do with the “historical” linkage of many commodity prices, in the first place, oil prices, to the dollar. At present, the global oil market is a single and spot one. Transactions on this market are short-lived and are clinched in dollars, to minimize risks and cut costs. There is a viewpoint under which the main purpose of the American “slate revolution” is to preserve such a state of things on the oil market. Also, to bring the world gas market to the “spot” format. Such a reformatting of markets will make it possible to preserve the linkage of oil and gas market to the US dollar.

Finally, the third obstacle, the most fundamental one, is of geopolitical nature.  It tests the ability of the emitter of global reserve currency to create and maintain a stable world order, in the center of which it resides. The temporary lag, from the 1880s, when the United States surpassed the British Empire in production, to 1944, when the agreements in Bretton-Woods were signed, demonstrates the importance of geopolitics in the process of replacing the British pound with the American dollar as a leading world currency.

On the whole, so far playing against the yuan are the high costs of “carrying out financial transactions, related to obtaining and disseminating information”; the limited capacity of “China to produce political influence on other global economic centers, mainly the United States and the EU”; “China’s dependence on Hong Kong as a regional offshore financial center”. Beijing cannot afford free movement of capitals in the absence of “fundamental” and “politically challenging” structural reforms in the economy.

Speaking against the euro is the absence, unlike the main competitors, the dollar and the yuan, of a “solid foundation”. The EU common budget is set to pay subsidies to member countries, while years-long disputes about establishing a common ministry of finance all but fuel discord in relations between 19 governments of eurozone countries. The growth of Eurozone “strongly depends” on export “and on the corresponding export of capital”.

The optimistic way out of the current situation is agreement between three top economies, the USA, China and the EU, on forming a currency basket, similarly to the IMF rules of drawing loans. In this situation, the function of regulating “the basket” goes to either the IMF, or “a new international financial institute set to this  end”. In case the events follow an unfavorable scenario, “given the world’s division into blocs currencies could also split into sectors”.

However, in Eurasia and in the Middle East the idea of “optimum currency area” would be particularly hard to put into practice. The author of the concept, Robert Mundall, insisted that for a successful currency integration “it was necessary to guarantee maximum economic openness; close trade ties with partner countries: correlation of economic cycles which develop in separate countries with a cycle that is inherent in the major economic integration potential”. Russia is demonstrating a good example of policy for countries which are not ready to enter either the dollar zone or the euro area.

Moscow has been diversifying its currency reserves in recent years, focusing on the yuan as well. Amid the aggravation of trade wars, gold is becoming an alternative to the existing reserve currencies. Gold will do a good service to countries in case of the arrival of a currency basket, to strike a compromise between the dollar, the euro and the yuan.

The Russian Central Bank has been systematically purchasing gold since 2005. The purchase of gold reserves has been gaining pace since the second half of the 2010s, which is largely “due to the political and economic situation in the world and Russia’s determination to reduce dependence on the unpredictable US policy and the dollar”. China too, has been buying gold, just as many “developing economies”. The coronavirus crisis has changed radically the formerly skeptical attitude of western politicians and commentators to the policy of purchasing gold.  Particularly after the price of gold exceeded an 11-year maximum at the end of July. At the same time, gold does not earn interest but requires spending on storage.

In general, if the formation of currency multipolarity is accompanied by rate fluctuations and chaotic transition of capitals from one  currency into another and back, it will surely lead to either a new global crisis, or will dramatically aggravate the current one, should it linger for several years. Meanwhile, China or the EU are hardly interested in an early fall of the dollar: an excessively high yuan or euro rate will undermine the positions of Chinese and European producers and conversely, provide American exporters with unjustified advantages.

Financial markets today are a system of communicating vessels. Also, the years following the 2008 crisis saw the return of interest in “Keynesian methods”, which envisage a substantial control of the economy on the part of the government.  The corona crisis has fueled political moods in favor of currency sovereignty. Presumably, changes in the distribution of power among reserve currencies will hardly run ahead of changes on the geopolitical scene.

From our partner International Affairs

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Innovative ways to resume international travel

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International travel was predictably impacted as a result of covid 19 and the tourism industry suffered severe losses.

According to the UNWTO (United Nations World Tourism organization) barometer, the period from January-October 2020 witnessed a whopping 72% drop in tourist arrivals (international tourist arrivals dropped by 900 Million when compared to the January-October 2019 period). The loss in export revenues, year on year, from the tourist sector were a staggering 945 Billion USD. Tourist arrivals across regions witnessed a drop. According to the UNWTO barometer, the drop in tourism would cause a loss of 2 Trillion USD to the global economy.

Countries looking to resume international flights

During the midst of the pandemic, agreements were signed to facilitate essential travel between various countries (priority was given to workers, students or individuals who had to travel for emergency purposes).

Countries which have been successful in dealing with the pandemic have been looking to gradually resume international flights. Since October 2020, Singapore whose economy is significantly dependent upon tourism  had signed agreements with certain countries to ensure that travel for important purposes was less restrictive — either the quarantine period was reduced, or in some cases was not required at all.

New Zealand will be allowing quarantine free travel from Australia for the first time from April 19. New Zealand PM, Jacinda Ardern:

‘The Trans-Tasman travel bubble represents a start of a new chapter in our COVID response and recovery, one that people have worked so hard at’

Australia has been permitting travellers from New Zealand to enter most parts of the country without quarantine, though this has not been reciprocated.

A travel bubble has also opened between Taiwan (which has reported a little over 1,000 cases and 10 deaths) and the Island of Palau (which has reported 0 deaths) where travellers need not quarantine themselves (there are a number of other restrictions though).

Vaccine Passports, Digital Pass and differing perspectives

As countries get ready to open up travel, there has been a debate with regard to using ‘vaccine passports’ (these are documents which show that travellers have been vaccinated against Covid-19 or recently tested negative for the virus).

One country which is using this experiment domestically is Israel. It has issued a document known as ‘Green Pass’ to those who have been vaccinated or if they have developed immunity. This Green Pass can be used  for entry into gyms, hotels,  restaurants and theatres. The UK and US too are mooting the idea of introducing such an arrangement. This idea has faced fervent opposition in both countries. In UK, opposition parties Labour, Liberal Democrats and the Scottish National Party (SNP) have opposed the idea of such a covid certification document. The reasons cited for opposition are concerns with regard to ‘equity, ethics and privacy’.  The UK government has stated that a covid status certificate would not be introduced before June, and trials of various schemes to ensure safe opening up of the UK economy would carry on.

In the US, Republicans are opposing the idea of a vaccine passport saying that such an idea would be an attack on personal freedoms. Donald Trump’s son Donald Trump Jr urged Republicans to ‘vocally and aggressively’ stand up against vaccine passports.

If one were to look at international travel, International Airport Transport Association (IATA) has introduced a travel pass, a digital certificate, which will confirm a flyer’s COVID-19 test result and vaccination status. Singapore will be accepting travellers using this mobile digital pass from May 2021.While the pass has been tested by Singapore Airlines, 20 airlines (including Emirates and Malaysia Airlines) are in the process of testing the pass.

While one of the pitfalls of a covid status certificate or Vaccine passport is the impingement upon privacy, it has also been argued that developing countries will be at a disadvantage given the relatively slow rate of vaccination in the developing world. While remarking in the context of Africa,Dr. John Nkengasong the head of the Africa Centers for Disease Control and Prevention, said:

‘We are already in a situation where we don’t have vaccines, and it will be extremely unfortunate that countries impose a travel requirement of immunization certificates whereas the rest of the world has not had the chance to have access to vaccines.’

Conclusion

In conclusion, it is important for innovative ways to resume international travel. Safety needs to be balanced with equity, for this it is imperative that all actors engage in a constructive manner. A number of observers have suggested that vaccine passports/covid status certificates should be made optional, and that there is nothing wrong in using technology per se but it should not be thrust on anyone. The fight against the pandemic and revival of international travel are a golden opportunity for countries to reverse the increasing sense of insularity and inequity which has risen in recent years.

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Will the trade war between China and the United States come to end?

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USA China Trade War

Authors: Raihan Ronodipuro& Hafizha Dwi Ulfa*

The recent trade conflict between the United States and China has had a direct effect on some of the world’s economic players. These two countries are attacking each other with declarations and a trade war; the relationship between the two countries can be defined as a love-hate relationship because the two countries have a lot of mistrust for each other, but they still need each other.

The United States requires China as a global source of low-wage labor as well as a market for marketing American products, and China requires the United States as an investor in its companies as well as a market for marketing Chinese products known for their low-cost. What makes these two countries to be so cold to one another? To answer the question, let’s go back to when this trade war saga started.

Donald Trump is a successful businessman who owns enterprises and corporations all over the world. His candidacy for President of the United States in 2016 poses several concerns, including whether Trump is eligible to run for office. Trump replied by becoming the 45th President of the United States, succeeding Obama.

Trump adopted a protectionism agenda in order to shield the US economy from what he referred to as the “robber from China.” Trump has released a law stating that all steel and aluminum products entering the United States from Europe, China, Canada, and Mexico would be subject to 25% and 10% tariffs, respectively. Of course, China is outraged that the United States issued this order, as well as a related policy on all tribal products. Automobile components, as well as agriculture and fishery products, are manufactured in the United States.

In addition to the tariff battle, President Trump has expressly demanded that the TikTok and WeChat apps be prohibited from running in the United States. We know that these two technologies are very common in the larger population. Giant corporations, such as Huawei, have not survived Trump’s “rampage,” with the Chinese telecommunications giant accused of leaking US national security data to China through Huawei’s contract with US security authorities.

As a result, many US firms were forced to cancel contracts with Huawei or face sanctions. Google is one of the companies impacted by this contract termination, which means that all Huawei smartphone devices manufactured in 2019 and after will lack any of Google’s services such as the Google Play Store, Gmail, and YouTube.

Many of the world’s economic organizations predict a 0.7 percent drop in GDP in 2018 and a 2% growth in 2020. Coupled with the Coronavirus pandemic, the global economy has become increasingly stagnant, with global economic growth expected to be less than 0%.

Amid the tough trade negotiations between the United States and China, COVID-19 pandemic is also affecting their relationship. The United States domestic pressure to contain the pandemic, has led Trump to accuse China of being the virus spread source.  As a consequence, Trump put the US-China future relations at stake with his “China’s Virus” label. Besides, the United States absence from World Health Organization (WHO) during Trump administration along the pandemic, that become a new opportunity for China to expand its influence.  China uses the Covid-19 pandemic issue as an opportunity.

China’s successful in controlling the pandemic,  has also made China confident in facing the United States. Meanwhile, the United States is increasingly threatened by its position. Moreover, the United States dependence on overcoming Covid-19 which requires relations from many parties, including China, makes the United States’ position weak as a superpower.

This is what we hoped for when Biden took office. Many consider President Joe Biden to be willing to “soften” the United States’ stance on the trade war with China. After his inauguration on January 20, 2021, Biden has made many contacts with Beijing to address a variety of issues, one of which is the continuation of the trade war.

The United States and China agreed to meet in Anchorage, Alaska, on March 18-20, 2021, to discuss this issue. The meeting produced no bright spots in the escalation of the US-China trade war, but rather posed questions concerning the Middle East, Xinjiang, North Korea, and Taiwan.

The Biden administration stressed that it does not plan to abolish various regulations passed during the Trump administration’s term in the trade war with China, but it also does not intend to employ the same negotiation strategies as the Trump administration, which seemed to be very offensive. Besides, the Biden administration must be careful, If Biden prioritizes domestic challenges then China has room to push its agendas, including in the field of technology and territorial issues

Furthermore, the Biden administration’s policy has shifted from imposing tariffs on China to investing in industries that Biden believes are less competitive with China, such as nanotechnology and communication networks.

In conclusion, the trade war between the United States and China has ushered in a new age in the global economy, one in which China is going forward to replace the United States’ status as a world economic force, something that the United States fears.

The door to investment is being opened as broad as possible, the private sector is being encouraged to participate (under tight government oversight, of course), the cost of living is being raised, and the defense spending is being expanded. Today, we can see how the Chinese economy is advancing, becoming the world’s second largest economy after the United States, selling goods all over the world to challenge the United States’ status, and even having the world’s largest military after the United States.

The rise of China is what the US is scared of; after initially dismissing China’s problem as insignificant, the US under the Trump administration takes China and Xi Jinping’s problems seriously by starting a trade war that is still underway.

Will this trade war enter a new chapter in the Biden presidency, where the relationship with China will be more ‘calm’ and the trade war can be ended, or can it stalemate and maintain the stance as during the previous president’s presidency?

*Hafizha Dwi Ulfa is a Research Assistant of the Indonesian International Relations Study Center (IIRS Center) with analysis focus on ASEAN, East Asia, and Indo-Pacific studies.

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The “Retail Investor Revolution” in the U.S.

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Authors: Chan Kung and He Jun

Recently, the battle between retail investors and institutional investors is taking place in the U.S. stock market, with some short-selling institutional investors being driven to the brink of bankruptcy. The rise of the retail investor, which has led to huge volatility in the U.S. stock market, is nothing short of a “retail investor revolution” in a market dominated by institutional investors.

GameStop (GME), the world’s largest video game and entertainment software specialty retailer with a chain of nearly 7,000 retail stores worldwide, has continued to underperform in recent years under the impact of online gaming, with its stock price dipping from USD 28 per share in 2016 to USD 2.57 per share in April 2020. Nevertheless, since January 11, 2021, retail investors have been bullish on GME that it has soared to as high as USD 483 per share, a “crazy” move that drove Melvin Capital, a hedge fund with a large short position in the company, to the brink of bankruptcy. So far this year, short-sellers had lost USD 19.75 billion on GME, according to fintech and analytics firm S3 Partners. S3 Partners estimates that short positions in GME lost more than USD 7.8 billion on January 29 alone. The “long-short” battle between retail investors and institutional investors ended with the retreat of institutional investors.

Other U.S. stocks that have recently been caught up in the “long-short” battle have also been volatile. On January 28, American Airlines plunged after opening nearly 31% higher, closing up 9.30%. Castor Marintime, a Cypriot dry bulk shipping company, also plunged after opening with a 67.62% jump, closing up 14.77%. AMC Theatres, a U.S. cinema chain on the verge of bankruptcy, closed down 56.63% on the same day after soaring more than sevenfold in two weeks. Canadian mobile phone company BlackBerry and the U.S. fashion clothing chain Express also fell about 42% and 51%, respectively.

The U.S. capital market has long been dominated by institutional investors, and in mid-2018, institutional investors held 93.2% of the market value of the stock market, while individual investors held less than 6% of the market value. In the U.S. capital market, where institutions are the absolute majority, the market system and regulatory rules are set in favor of institutional investors. Market participants, i.e., investors (institutional investors and retail investors), regulatory authorities, and financing entities (enterprises) have formed a set of “self-consistent” system. However, the “retail investor revolution” has disrupted the conventional ecology of the market, with some young retail investors from the WallStreetBets (WSB) group on the Reddit forum throwing institutions into disarray. This “long-short” battle has put retail investors, represented by the “WallStreetBets”, at center stage and secured support from the top elites, including Elon Musk. In the face of this sudden “retail investor revolution”, the reasons and possible effects are worth in-depth observation and thinking.

First, who opposes the “retail investor revolution”?

The answer is of course, Wall Street as represented by institutional investors, who are the “establishment” in the capital market and represent the mainstream and value perspectiveof the financial market. Goldman Sachs, a prominent investment bank, saying the butterfly effect of the GME short squeeze is leading to the worst short squeeze in the U.S. stock market since the financial crisis. Over the past 25 years, the U.S. stock market has seen a number of severe short squeezes, but none as extreme as has occurred recently. Goldman Sachs warned that if the short squeeze continued, the entire financial market would collapse. According to Goldman Sachs, unsustainable excess in one small part of the market has the potential to tip a row of dominoes and create broader turmoil. In recent years, the pattern of low volume and high concentration in U.S. stocks has increased the risk of funds unwinding their position across the market.

Market maker brokers and trading platforms have also imposed strict restrictions on retail trading. In the midst of a fierce battle between retail investors and short sellers in the U.S. stock market, for example, several brokerage houses, including Robinhood, a zero-commission online brokerage, and Interactive Brokers, one of the largest online brokerages in the U.S., abruptly shut down buying of WSB related stocks such as GME, AMC, and Nokia. Robinhood said the restrictions had to be put in place because of the pressure on data processing and margins brought by the volume of retail trading. But the move immediately drew accusations from the market that the decision was “market manipulation”.

Second, what gathers a group of scattered retail investors?

According to Chan Kung, founder of the ANBOUND, the answer lies in the internet. A group of young retail investors gather in a Reddit subsection called WallStreetBets (WSB), and rely on the convenience of the internet to mobilize and convene, forming a force that can influence institutions in specific areas (such as WSB concept stocks). As in recent years, public use of social networking platforms in the social and political spheres has shifted to the stock market investment sphere.

Chan also pointed out in that the role of the internet is not only in mobilizing and convening, but also in providing and sharing quality analysis. The dominance of institutions in the stock market is not only reflected in funds, but also in research capabilities. They rely on professional teams to collect information, conduct market research, and conduct modeling and analysis, forming a certain information monopoly and an overall investment advantage over retail investors. However, the development of the internet has broken up this information monopoly. Due to the convenience of information acquisition and sharing, some small institutions and professional investors also have a high analytical ability. Their participation and sharing make the Internet platform another kind of “large institutions”, which provide investment analysis and advice to retail investors in a distributed manner. The rapid information sharing and investment actions make the retail investor cluster a “disruptor” and “challenger” that cannot be underestimated in the capital market. Chan Kung also pointed out that among the retail investors, a group of people with strong information ability will further decide the market trend in the future, and the investment in the capital market will gradually become information-oriented, and the size of the funds will not be as important as in the past.

Third, how would the U.S. financial regulators handle the short squeeze and the stock market turmoil?

The U.S. Securities and Exchange Commission (SEC) said on January 29 that it is closely monitoring extreme price volatility and will review entities that “unduly inhibit” traders’ ability to trade certain stocks. The SEC also added that extreme stock price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence, and that market participants should be careful to avoid “illegal” manipulative trading activity. The SEC is working with regulators to assess the current situation and review the activities of regulated entities, financial intermediaries, and other market participants. White House Press Secretary Jen Psaki said that Treasury Secretary Janet Yellen and the White House economic team are closely watching the stock market activity around GameStop and other heavily shorted companies. She called the trading in the video-game retailer “a good reminder, though, that the stock market isn’t the only measure of the health of our economy.” Fed Chairman Jerome Powell declined to weigh in on the activity around GameStop. “I don’t want to comment on a particular company or day’s market activity or things like that. It’s just not something really that I would typically comment on,” Powell said. This information suggests that the U.S. regulatory authorities are cautious in their stance on market volatility, but hope that the market will remain stable and compliant.

Fourth, what will happen to the market relationship between retail investors and institutions?

The “retail investor revolution” has exposed the contradiction between retail investors and institutions, and made the market relationship between retail investors and institutions the focus of the market. Retail investors are within their rights to take legal action against brokerage houses for restricting trading. In the market, it is not only the so-called “regulators” that can deliver justice. Chan Kung stressed that the real problem with institutional restrictions is that if Wall Street establishes a firewall for market trading and prohibits retail investors from uniting to make the market, then the market becomes an inter-agency market, and may even further evolve into a false trading market, shaking the foundation of the entire market system. Therefore, this unprecedented short squeeze triggered by retail investors has exposed a systemic defect in the U.S. capital market. To solve this problem, there is the need to continue observing and following up.

Remarkably, the same problem exists in China. People who speculate in Chinese stocks gather on WeChat and online forums to lead a large number of hot money to hit the market. Drawing on the example of the “retail investor revolution” in the U.S., the following questions are worth considering: Is such trading activity legal? If it is “illegal”, then what kind of market has the Chinese stock market become? If there are certain winners in the market, limits on how much the stock price can go up and how much they can go down, and, in short, all the criteria that are set internally, isn’t the market trading becoming akin to sham game? Such questions are also worth pondering in China’s retail investors-dominated stock market.

Final analysis conclusion

The historical experience shows that the enthusiasm of the market can never prevent the laws of the market from working, and that the rules formed on the basis of previous experiences and lessons are still the main keynote of the market. At the same time, one should also see that with the changes in the information world and the changes in the behavior of retail investors, retail investors are forming a force that can affect the market. Therefore, certain changes in the market system and regulatory approach as a result are likely to be a future trend.

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