First of all, what is exchange rate distortion? Exchange rate distortion means that the exchange rate cannot correctly reflect the supply and demand relationship between the two currencies in the market. Generally speaking, it is assumed that the exchange rate of US dollar against RMB should be 1:5 according to the normal supply and demand relationship in the market, and now it has been artificially adjusted to 1: 1. This is the exchange rate distortion.

In the simplest case, if you have 100 RMB in your hand at this time, you can convert it all into US dollars, and it becomes 100 US dollars. Then put 100 USD into the American market through commodity trade or international investment, and then you can exchange it for RMB, and you can earn 400 yuan in one trip. If you have a lot of money, you will get rich profits. Then you have to bring RMB for domestic consumption. Then your capital is earned without production activities. If everyone does as you do, the result is that no one wants to produce, and a large number of people make profits through arbitrage. Then there are more and more RMB in the domestic market, but fewer and fewer people are willing to produce it (that is, fewer and fewer goods). Then, the price will soar. It is the so-called "capital torrent". Generally speaking, there is too much money in the market, and money is worthless.