On RMB Exchange Rate And Its Impact

Exchange rate is an important economic variable. With China's opening to the world, RMB exchange rate has been paid close attention and economists have made a lot of researches on the problem. Since 2002, under the appreciation pressure of RMB, economists and policy designers have been focusing their attention upon the moving trend of RMB exchange rate. The studies on the problem have very important significance either for economic reality or for academic research. As far as academic meaning concerned, by finding the moving tracks and seeking the variation rule of RMB exchange rate, we can offer reference for decision-making. After China joining WTO, the relations between China and other countries will be much closer and the flow of goods, capital, labor force will be much more frequent. As RMB external value, the moving trend of RMB exchange rate has a great influence not only upon foreign trade, capital flow, balance of payments, price level, employment and other macroeconomic variables, but also upon microeconomic behavior. Therefore, researching and forecasting the moving trend of RMB exchange rate and analyzing its influence will be propitious to selecting effective policy and offering reference to enterprises' decision-making.Today the basic two ideas of domestic economists' studies of the moving trend of RMB exchange rate are as follows: One is researching and estimating RMB equilibrium exchange rate. By comparing equilibrium exchange rate with real exchange rate, the estimation about the moving trend of RMB exchange rate can be formed. The other is by accounting effective exchange rate index of RMB and a basket of other currencies, the change of RMB exchange rate against a basket of currencies can be analyzed, and how to adjust RMB exchange rate can be estimated. There are two methods of accounting effective exchange rate: geometric weighted-average method and arithmetic weighted-average method. In this paper, the author adopts the latter---- arithmetic weighted-average method, chooses seventeencurrencies of China's main trade partners as the swatches, uses fixed weight, works out the annual data of RMB NEER (nominal effective exchange rate) and REER (real effective exchange rate) from 1990 to 2003. On the basis, the author analyzes the real moving trend of RMB exchange rate and its reasons during these years. Moreover, according to the analysis of the factors that influence the moving trend of RMB exchange rate, an opinion upon the coming trend of RMB exchange rate is given. The result indicates that from 1990 to 2003, although RMB NEER and REER appreciated in several years, devaluation is the general trend. Therein RMB NEER devaluated 52.02% and REER devaluated 36.52%. It has been the chief reason of China's trade surplus for a long time. According to the analysis of influential factors of RMB exchange rate, RMB nominal exchange rate and real exchange rate have appreciated potential. The economic foundation of RMB exchange rate appreciation includes: China's foreign exchange supply will preponderate over demand in a long period; the driving economic growth; the effective inflation control. Therefore, RMB devaluation since 2002 has been relatively speaking, mainly because of USD devaluation and RMB nailing up USD. According to the development of economic fundamental factors, the general trend of RMB exchange rate should appreciate. This paper's analysis finds that the benefit of RMB appreciation is very definite, however the cost is undefined. Under the effective macro-control policy, the total advantages of RMB exchange rate appreciation should be more than the total disadvantages. Finally, considering RMB appreciation may bring about some bad influence and there are a good many limitation in exchange rate management, this paper advances several countermeasures and suggestions to cooperate with the appreciated trend of RMB exchange rate.