Foreign exchange rate is the rate, parity or price at which one country's currency is converted into another country's currency; It can also be said that foreign currency is the "price" expressed in domestic currency. Because of international trade and non-trade exchange, countries need to handle international settlement, so one country's currency has an exchange rate with other countries' currencies.
To convert the currencies of two countries, we must first determine which country's currency shall prevail. Due to different standards, there are two pricing methods: direct quotation and indirect pricing.
The direct quotation is based on the foreign currency of 1 unit or 100 unit and converted into a certain amount of domestic currency. Under the direct quotation, the foreign currency amount is fixed, while the local currency amount changes with the change of foreign currency or local currency value. Most countries adopt direct standards.
Price method. China adopts indirect pricing method.
Based on the domestic currency of 1 unit or 100 unit, it is converted into a certain amount of foreign currency, which is called indirect pricing method. Under the indirect pricing method, the local currency amount is fixed, and the foreign currency amount changes with the change of the local currency or foreign currency value. Britain and the United States are both countries that adopt indirect pricing method.
Fixed exchange rate is not only related to the price competitiveness of a country's export commodity trade, service trade and technology trade in domestic and foreign markets, but also related to the international relative rate of return of a country's financial assets and the cost of foreign direct investment. Therefore, exchange rate is one of the indispensable economic levers in international economic exchanges.
Second, how is the exchange rate determined in the international financial market?
Since the exchange rate is so important, how is the exchange rate determined in the international financial market? Generally speaking, the foreign exchange rate in the international financial market is determined by the actual social purchasing power parity represented by a country's currency and the relationship between foreign exchange supply and demand in the market.
Under the condition of paper money circulation, although the expression of exchange rate is the exchange rate between the currencies of two countries and several countries, the basis of its connotation or value determination is essentially to reflect the relative prices of goods in different countries, that is, the purchasing power parity of domestic and international price comparison is the basis of exchange rate determination. Rather than the relative prices of currencies in different countries, because paper money itself is worthless.
In real life, the exchange rate is also influenced by foreign exchange supply and demand, national defense balance and monetary policy. For example, other things being equal, when the demand for a foreign exchange (such as USD) in the international financial market increases, its exchange rate (such as USD price) will rise, and vice versa. At the same time, when a country has a surplus in its balance of payments, it means that its foreign exchange supply has increased. Other things being equal, the foreign exchange price may fall and the local currency may appreciate. On the other hand, a country's balance of payments is in deficit. As the country's foreign exchange supply decreases, the foreign exchange price will appreciate and the local currency exchange rate will depreciate.
In addition, in real life, there is also a country's monetary policy, interest rate policy and price policy. For example, when a country issues too much paper money, which leads to inflation and rising prices, the result will be the depreciation of its own currency and the rise of foreign exchange prices. Another example is that a country's interest rate hike will not only promote the inflow of foreign capital, but also lead to an increase in the demand for its currency and an increase in the price of its local currency; On the contrary, lower interest rates will lead to capital outflow, and the local currency exchange rate may depreciate. In addition, political changes and various speculative activities will also affect the exchange rate changes.
3. What are the main exchange rate systems in the world?
Historically, there are two main exchange rate systems in the world, namely, fixed exchange rate system and floating exchange rate system.
1. Fixed exchange rate system
Fixed exchange rate system means that the ratio of one country (region) currency to other countries (regions) currency is basically fixed, and this exchange rate cannot be freely changed in the international currency market. Throughout the evolution history of the international monetary system, the fixed exchange rate system can be divided into the fixed exchange rate system under the gold standard system and the fixed exchange rate system under the gold standard system.
Under the gold standard fixed exchange rate system, each monetary unit has a legal gold content, and the price comparison between the two currencies is the ratio of the gold content of the two currencies, which is the standard for determining the currency exchange rate. For example, before 1929, the gold content of British 1 GBP gold coins was13.0016 jelly (granules), the gold content of American L-dollar gold coins was 23.22 jelly (granules), and the ratio of GBP to USD was/kloc-0. In the foreign exchange market, the fluctuation range of exchange rate is roughly bounded by the gold delivery point, so it has relative stability. With the disintegration of the gold standard, this fixed exchange rate system no longer exists.
From World War II to the collapse of 1973 Bretton Woods system, the fixed exchange rate system under the gold dollar standard has been implemented internationally. It is characterized by the double pegging system, that is, the US dollar is linked to gold, and the currencies of various countries are linked to the US dollar, maintaining a fixed parity with the US dollar. The specific provisions are: (1) 1 USD paper money has a gold content of 0.88867 1 g, and other dealers also stipulate the gold content of their own currencies accordingly. For example, the British 1946 stipulates that the gold content of 1 GBP notes is 3.58 134 grams, so the ratio of gold content of notes between the two countries becomes determined by the exchange rate. For example, the exchange rate between the British pound and the US dollar is 3.58 1 34/0.881= 4.03, that is,1equals 4.03 US dollars. (2) The fluctuation range of the exchange rate of IMF member countries in the foreign exchange market shall not exceed 1% of the upper and lower limits of their currency parity. Otherwise, in order to maintain the stability of the exchange rate, other member States have the responsibility to intervene.
2. Floating exchange rate system
Floating exchange rate system means that the exchange rate of a country's currency can freely float according to the supply and demand relationship in the foreign exchange market. Under this exchange rate system, the fluctuation range of exchange rates in various countries is not limited, and it does not undertake the obligation to maintain the floating range. The imbalance of international payments is self-regulated through exchange rate changes. Floating exchange rate system has a long history. During the gold standard period, Britain, the United States, France and some developing countries all implemented floating exchange rate system. Since the 1970s, with the development of global inflation, the floating modes of exchange rates in various countries have become more flexible and complicated. 197 1 in August, floating exchange rate system was implemented among major international currencies, and by March, 1973, all countries implemented floating exchange rate system. At present, the main floating modes are: the free floating mode that changes and adjusts spontaneously according to the supply and demand situation of the foreign exchange market, the managed floating mode that the government intervenes in the foreign exchange market, the joint floating mode of European regional monetary groups, and the separate floating mode that does not take joint action with any country.
Before 1 994 65438+1October1,the RMB exchange rate was set, adjusted and announced by the state according to the needs of economic development. After 1994 65438+ 10/0, China implemented a new foreign exchange management system. The basic determinant of RMB exchange rate is the supply and demand of foreign exchange market, which is also managed and regulated by the central bank. However, the marketization of RMB exchange rate is not high.