Research On The Impact Mechanism Of FDI Inflows On The RMB Exchange Rate

Consumption, investment and exports promot economic development together.since China’s reform and opening up, China’s speed of economic growth is quickly while at the same time the domestic economy face the problem of extreme irrational economic structure. The total consumption accounted for GDP is still low, the ratio of consumption in GDP is less than50%at the end of2012.The strategy of "adjust the structure of domestic economy " was released in2010,during the Fifth Plenary Session of the Seventeenth and it’s of top priority in the Twelfth Five-Year Plan. Adjust the structure is to ensure a soft landing for the economy because the investment would suffer a obstruction during the period of interest marketization.Now the monetary authorities must take a certain action to improve consumption and exports. However, it’s hardly to change the consumption habits of residents, so the monetary authorities must maintain stable export in order to ensure economic stability. Only when the RMB exchange rate volatility is relatively small, our export will be stable.The RMB exchange rate formation mechanism changed to a managed floating exchange rate system in2005, and FDI is one of many factors that is influential to the RMB exchange rate.FDI is the major form of international capital flow because Capital account control is very strict in our country. So it’s of great importance to understand the way of FDI to influence the exchange rate.Now, we try to research the influencing mechanism of FDI to RMB exchange rate and prove our conclusion through the data. A Long-term equilibrium model will be established in this paper to analyze how the FDI influence the RMB.