| As the scale of globa l economy and international trade expand, with the establishment of Euro system, the status of U.S. dollar as the world currency are being shook with no precedent in history. Although many countries won't simply take U.S. dollar as their whole exchange reserves, they begin to reserve other currencies with excellent credit, such as Euros, RMB and so on. However, the U.S. dollar equity is still the main form of many countries'exchange reserve. The exchange rate of currencies of all countries fluctuates day by day, especially the fluctuation of the exchange rate between the currencies of many countries and U.S. dollar, which has brought a lot of risks to the international clearings.Therefore, the research into the theories of the determination of exchange rate takes great actual significance. Traditionally, theories on exchange rate determination are distinguished into two alternative approaches, one of which emphases on long-run analysis. The first one gradually evolved from the purchasing power parity, through the flexible price monetary model of monetarists, to the portfolio theory. It is obvious that the theoretical development is the evolution process from the long-run analysis to the short-run analysis, which explained the effects many factors have on the exchange rate clearly, but couldn't tell us what determines the exchange rate or release the essential reasons of why exchange rates keep fluctuating all the time. The other one is based on the short-run analysis, collect the economic data of two countries and the exchange rate over a certain period of time, carry out all kinds of mathematical analysis and tests, but the results come out to be different from reality. The reason for it is that researchers haven't brought the factors which have substantial influences on the fluctuation of exchange rate into the model. This is not the neglect of researchers', but the fault should be attributed to the difficulties of collecting the data of these factors, because many important factors in the real economy can't be digitalized. Therefore, the research into the theories of exchange rate determination can't wholly rely on the theoretical evolution or the short-run analysis of a collection of data, but to combine them together. Then it will be persuasive to depend on a main model to explain the determination of exchange rate, which consists of the factors can't be digitalized and analyze the effects they have on the determination and fluctuation of exchange rate.This dissertation starts from the history of emergence and development of currency to expatiate the close relationship between currency and goods. Money is a kind of special goods that play the part of general equivalence, and the value of other goods is evaluated by it in the commercial society. It is concluded that money itself belongs to goods, and it has the features of goods. However, it is also the special goods to represent the value of other goods , the common manifestation of value for all goods, and it dominates the commercial society as the unique general equivalence. As the trade developed, it wasn't only limited inside any country or district, it also expanded globally to be the international trade. Until the early 1930s, the precious metal became the main tool in international clearings after the international emerged. However, precious metal also brought about many troubles to the trade all over the world, and then some countries began to issue paper currency hooked with precious metal, some of which gradually became to be the international currencies playing the part of tools of international clearings. There existed uneven economic development in all international trading participants, and the hook between paper currency and precious metal grew looser over time. Then the massive use of paper currency and the purchasing power it represented decreasing caused big fluctuations of the relative price of different currencies. At last, the infinite unlimited issuing of paper currency, the strong fluctuations of exchange rates between U.S. dollar and other paper currencies, and the disconnection between U.S. dollar and gold caused by the sharply rising prices of gold led to the collapse of the Bretton Woods Monetary System. From then on, the U.S. dollar, the paper currency of the country with strongest economic power around the world, became the international currency. The value of all paper currencies could only be evaluated by the purchasing power it represented and there was no relationship between paper currency and precious metal. A conclusion can be drawn from the history of currency and international trade, that the relationship between currency and good s exists naturally from the moment they were born, and the exchange rate is the ratio of two different currencies, so the determination and fluctuation of exchange rate should be due to the change of the currency in one country with respect to that of another, ultimately. The purchasing power parity plays the key role in the determination of exchange rate, and other factors can only cause short-term fluctuations. Although the fluctuations might be unreasonably crazy in a period of time, they can't last long. In my opinion, the exchange rate is directly determined by the real economic performance, by which is reflected by the long-term equilibrium of exchange rate in market. The dissertation will analyze all possible factors influencing the exchange rate in detail and recover the impacts they have, including interest rate, the global flow of capital and hot money, government manipulation and so on. Based the analysis above, in order to prove the key role the purchasing power parity plays theoretically in the determination of exchange rate, the article turns to devise a long-term exchange rate equilibrium mechanism through a model of array. In the end part of the dissertation, the selection of RMB exchange rate regime will be investigated with the mechanism brought up above.Through the analysis in this article, we can steer clear well of the strict restrictive conditions of purchasing power parity, and release rational explanations of the determination and fluctuation of exchange rate both theoretically and practically. Having finished the analysis of exchange rate of RMB and U.S. dollar in the direction of the theory above, there are some problems in the present RMB exchange rate regime, and a reform becomes necessary. |
