The influence of exchange rate changes on a country's foreign economy is mainly reflected in foreign trade, international capital flow and tourism. This paper only discusses the important role of foreign trade in economic impact.
(A) From the impact of exchange rate changes on the trade balance-RMB appreciation will not hit exports.
"The appreciation of RMB will cause a great increase in imports, a decrease in exports and a blow to exports ..." This is probably the main reason for scholars who oppose, worry or even fear the appreciation of RMB. This popular statement is mainly based on the financial theory that "devaluation promotes exports and restricts imports"; Appreciation promotes imports and discourages exports ",but they ignore two prerequisites for this theory to take effect: First, the improvement of trade balance through depreciation must conform to Marshall-Lerner conditions (that is, when the demand elasticity of exports and imports is greater than 1, currency depreciation is conducive to improving trade balance); Secondly, the theory is only applicable to general trade.
On the one hand, the impact of RMB appreciation on exports is not obvious.
Meet the "Marshall-Lerner condition", the quantity and amount of imports and exports change in the same direction, and currency depreciation can improve the trade balance. On the contrary, depreciation does not necessarily promote exports to improve the trade balance, which means that the impact of appreciation on exports should be re-examined. Jin Fan, an economics professor, calculated in 2004 that the price demand elasticity of China's medium and long-term export products was -0.857932, and the absolute value was less than 1. That is to say, if the foreign currency price of export commodities increases in the same proportion, the export quantity will decrease by 0.857932%. However, because the increase of export price exceeds the decrease of export quantity, the export amount will increase. Therefore, appreciation will not reduce exports.
On the other hand, appreciation will not enlarge the trade deficit.
This is based on the particularity of China's foreign trade structure, that is, the development of processing trade makes imports and exports move in the same direction rather than in the opposite direction. Since 1990s, processing trade has become the main driving force of China's trade growth. In addition, if the relationship between the cost of export products and exchange rate changes is dynamically investigated, appropriate appreciation will lead to corresponding changes in export costs and structure, which is generally beneficial to the balance of export and trade, which is also due to the particularity of China's processing trade, while general trade is the opposite.
From another point of view, with the appreciation of RMB, domestic wages will increase with the improvement of technical level, which will lead to the improvement of overall wage level. This is just what we need.
(B) From the impact of exchange rate changes on the terms of trade-RMB appreciation can improve the terms of trade.
The so-called terms of trade are the exchange prices of exports and imports. We should not blindly think that the terms of trade can be improved by devaluing and expanding exports. According to the elasticity analysis theory, only when the product of supply elasticity of exports and imports is less than the product of demand elasticity of exports and imports, currency depreciation can improve the terms of trade. In fact, during the period of 1978- 1994, China's RMB exchange rate depreciated many times, but the terms of trade continued to deteriorate, resulting in the so-called "poor foreign trade growth" phenomenon in economics. From 1993 to 2000, China's overall terms of trade decreased by 13%. This is related to the undervaluation of RMB exchange rate and unreasonable industrial structure.
Theoretically, the price of export products rises in direct proportion to the appreciation of exchange rate, which is the primary performance of improving the terms of trade. For example, within two years, the RMB will appreciate by 30% and the export price will rise by 30%. No one believes that it will not hit exports, but the problems are as follows: first, there is a "time lag" in the decline of exports due to the "J-curve effect"; Second, processing trade is basically unaffected, while the import part of general trade accounts for more than 60% of the cost of export products. In this way, the decline in import prices will encourage enterprises to use more foreign raw materials and equipment, thus improving production efficiency. Enterprises can absorb most of the appreciation factors, wages will not increase significantly with the appreciation of the exchange rate, and export prices will not increase proportionally with the rise of the nominal exchange rate. For example, if the RMB appreciates by 30%, the export price of general trade goods may only increase by 15%.
Secondly, the increase in export prices of labor-intensive products that people are most worried about is actually beneficial. A shirt costs $30 in America, rising to $50. There is no reason to think that American consumers will not buy shirts or turn to Mexico. Even so, reducing the export quantity of cheap labor-intensive products and increasing the selling price in China will not reduce the export volume, but also reduce the international trade friction.
Professor Jin Fan used social accounting matrix technology to analyze the impact of RMB appreciation of 3%, 5%, 10%, 20% and 30% on China's import and export from the perspective of general equilibrium analysis, and drew two conclusions: ① RMB appreciation of 3% promoted exports to increase by 0.43 percentage points, and with the increase of appreciation, exports increased. After RMB appreciated by 30%, exports increased by 4.26 percentage points. It shows that whether the RMB appreciates moderately or greatly, it will not harm China's exports. (2) A 3% appreciation of RMB pushed imports to increase by 0.32 percentage points, and with the increase of appreciation, imports also increased, with a 30% appreciation of RMB and an increase of 2.32 percentage points.
It can be seen that the appreciation of RMB is beneficial to China's foreign trade, which will not only "hit exports" but also improve the terms of trade.
Second, the impact of RMB exchange rate changes on China's domestic economy.
Domestic prices, national income, employment and industrial structure are greatly affected by exchange rate changes. This article only talks about the impact of RMB appreciation on domestic price changes in China. After the appreciation, the price of imported goods denominated in RMB will drop, which will often reduce the demand of similar products in China, and then lead to the decline of domestic consumer goods prices.
However, at present, nearly half of China's imports belong to processing and assembly trade. The decline in the prices of these imported products will not lead to a general decline in the prices of domestic products, and in recent years, the dollar unit prices of most primary products and capital and technology-intensive products have increased to varying degrees. From 1993 to 2000, the total import price index of China increased by 19%, of which manufactured goods increased by 20% and primary products increased by 16%.
Nevertheless, the impact of RMB appreciation on domestic similar products will also increase the risks of domestic enterprises. Because the change of exchange rate causes the change of relative prices of imported materials and exported goods, it will inevitably affect the competitiveness of enterprises in the market. Besides, in the long run, the elimination of short-term inflation may lead to deflation, which is not conducive to China's economic development.
Third, the impact of RMB exchange rate changes on China's foreign exchange reserves:
On the one hand, the exchange rate change of reserve currency will affect the real value of foreign exchange reserves; On the other hand, the change of local currency exchange rate will affect the country's foreign exchange reserves through capital transfer and foreign trade. In addition, the instability of the exchange rate of the reserve currency will affect and weaken the status and role of the reserve currency.
The principle of international finance tells us that exchange rate plays a decisive role in foreign exchange reserves, and the increase or decrease of foreign exchange reserves is the result of exchange rate changes. The undervaluation or overvaluation of currency will eventually lead to the increase or decrease of foreign exchange reserves by causing changes in the trade balance. One of the reasons for the continuous growth of China's foreign exchange reserves is that the undervalued RMB exchange rate has brought about a comparative advantage in trade.
However, it should be noted that long-term surplus and excessive foreign exchange reserves will also have adverse effects on China's economy: first, it will promote the increase of RMB circulation, thus aggravating the inflation that has already occurred; Second, the long-term trade surplus has aggravated the already excessive foreign exchange reserves, which is not conducive to the full use of funds; Third, when the reserve currency (such as the US dollar) depreciates, it will also cause our country to suffer huge losses. In addition, the resulting tension in international relations can not be ignored.
It can be seen that the appreciation of RMB has an important impact on China's economy, especially in foreign trade, domestic prices and foreign exchange reserves. Generally speaking, the advantages of appreciation outweigh the disadvantages, and the slow appreciation of China's RMB after long-term undervaluation will inevitably have a far-reaching impact on China's economy (Author: capital university of economics and business Finance and Economics