(1) Changes in the real exchange rate will cause fluctuations in the relative prices of import and export goods and services, affect the balance of payments of goods and services, and then affect the relationship between foreign exchange supply and demand. However, the impact of real exchange rate changes on the terms of trade will offset its adjustment to the trade balance to some extent.

(2) The change of real exchange rate will cause the change of capital outflow and inflow. Generally speaking, the rise of the real exchange rate has the functions of encouraging capital export, expanding foreign investment and restraining capital input; On the contrary, the opposite is true.

Domestic influence

(1) When the real exchange rate (direct quotation, the same below) rises, it will encourage imports and push down domestic prices; It will also curb exports, turn a large number of goods from exports to domestic sales, increase the supply of goods in the domestic market, and thus depress domestic prices. When the real exchange rate falls, it will have the opposite effect.

(2) Generally speaking, the decline of real exchange rate has the effect of reducing domestic production and national income and increasing unemployment rate. The rise in the real exchange rate has had the opposite effect.

International influence

Because the undervalued exchange rate of local currency is conducive to expanding exports, some developed countries often deliberately depress the exchange rate as a means of dumping goods and competing for the international market. The dumping of foreign exchange in one country will cause other countries to take retaliatory measures and launch trade or currency wars. The result will inevitably deepen the contradictions among capitalist countries, lead to the tension of international relations, the prevalence of foreign exchange control and undermine the normal international economic order.

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