From textbooks, we know that RMB appreciation can effectively curb inflation, which is mainly based on the deflationary effect of local currency appreciation. Generally speaking, the appreciation of RMB can lead to the decline of import commodity prices (especially international raw material prices) and lower the domestic price level; At the same time, the price of domestic products has increased relative to the price of similar products abroad, which leads to the decline of exports, and the reduction of domestic export demand can reduce the domestic price level; The increase of imported goods, the decrease of export goods and the decrease of trade surplus can also reduce the pressure on foreign exchange. As the book says, the appreciation of RMB plays a very important role in alleviating domestic inflationary pressure.

But the reality is that it is difficult to completely replace domestic and foreign products. The appreciation of RMB will not only reduce the pressure of domestic inflation, but also boost the price rise, because there are two preconditions to solve domestic inflation through RMB appreciation: first, imported products must have a strong substitution effect with products with relatively large domestic price increases; Second, the price reduction of imported products brought about by appreciation must be greater than the price increase of similar domestic products. In the commodity import trade, there are resource commodity import monopolies (such as Sinopec and PetroChina monopolizing oil imports) and tax control on consumer goods, which will increase the price of imported goods in disguise, even if it appreciates, it may not significantly reduce the domestic price level. On the contrary, it is the expectation of RMB's continuous appreciation that induces a large inflow of international capital, which leads to an increase in foreign exchange holdings and a large amount of base money, which increases the pressure of rising prices. Take a classic quote of Friedman as an example: In any case, inflation is a monetary phenomenon.

Therefore, the theory that RMB appreciation can curb inflation is sometimes difficult to prove in practice. China's cheap labor cost makes the price of manufactured goods low, and there is a strong demand in the international market (foreigners are also greedy for petty gains). Unless imports are increased, it is actually difficult to effectively reduce the trade surplus. In addition, the production plans of many enterprises are made in advance, which is difficult to change in a short time. The export model is also rigid and will not be adjusted in time because of the change of exchange rate, so it has little impact on the decline of exports.

From July 2005 to the end of 20 10, the RMB appreciated by 25% against the US dollar and by 14% against the Euro. Over the past six years, the trend of RMB's "internal depreciation and external appreciation" has further intensified, and we still feel the pressure of two obvious price increases. The appreciation of RMB not only failed to "alleviate" the pressure of domestic inflation, but also stimulated a large inflow of international capital due to the increase of appreciation expectation, which led to an increase in foreign exchange holdings and a large amount of base money, which increased the pressure of rising prices. Although the benefits of RMB appreciation can alleviate the pressure of imported inflation, it is largely offset by the taxes of some state-owned enterprises and consumer goods with import rights.

As experts say, a sharp appreciation of RMB 10% will not only ease the domestic inflationary pressure, but also erode the profits of some small and medium-sized processing trade enterprises that rely heavily on exports, because in China's foreign trade field, more than 50% of the profits of processing trade enterprises are very thin, and most transactions are settled in US dollars. A sharp appreciation of the renminbi is likely to have an impact on the affordability of enterprises and the employment of employees.

I think it is necessary for the RMB to appreciate moderately in terms of optimizing the industrial structure. But the exchange rate should not rise too fast, but fluctuate in both directions, with some ups and downs. This can reduce the speed of international capital flowing into China due to the expectation of appreciation, and relieve the pressure of domestic inflation to some extent. As Governor Zhou Xiaochuan said: Exchange rate is not the main tool to really manage inflation. To solve the domestic inflationary pressure, we must base ourselves on the comprehensive application of fiscal policy and monetary policy, and use monetary policy tools such as interest rate, deposit reserve ratio and open market operation to regulate prices. We should keep the RMB exchange rate at a reasonable and balanced level, and we should not give up in order to curb inflation and disrupt the direction and steps of exchange rate reform.