1. Exchange rate changes will affect trade and balance of payments;
2. Exchange rate changes will affect capital flows;
3. Exchange rate changes will affect international reserves;
4. Exchange rate changes will affect inflation;
5. Exchange rate changes will affect international debt;
6. Exchange rate changes will affect international economic and financial relations.
First, the impact of exchange rate changes on a country's economy.
1. Impact on domestic economy
(1) affects the price rise and fall.
After the exchange rate changes, it immediately affects the prices of imported goods. First, the prices of imported consumer goods and raw materials change, and then the prices of goods processed with imported raw materials or domestic goods similar to importers also change.
After the exchange rate changes, the domestic prices of export commodities also change. If the exchange rate of local currency declines, the purchasing power of foreign currency will increase, and foreign importers will increase their demand for domestic exports. In the case that the supply of export commodities cannot increase correspondingly, the domestic price of export commodities will inevitably rise. In the export trade of primary products, the impact of exchange rate changes on prices is particularly obvious.
In the advanced stage of the capitalist cycle, due to the increase of domestic and international total demand, imports, demand for foreign exchange and soaring foreign currency prices, the domestic prices of export commodities and imported commodities have risen, and on this basis, the whole price level has risen.
(2) Under certain circumstances, it affects the production departments of export commodities.
The appreciation of foreign currency will make imported goods more expensive, increase the production cost of export commodity producers who mainly use imported raw materials and weaken their competitiveness in the international market, which is more beneficial to export commodity producers who mainly use domestic raw materials.
The depreciation of foreign currency will make imported goods cheaper, thus reducing the production cost of export commodity producers who mainly import raw materials and enhancing the competitiveness of export products in the international market. At the same time, producers of export commodities who mainly use domestic raw materials will not benefit from exchange rate changes.
The change of capital flow of non-trade items caused by exchange rate changes will also have a corresponding impact on the supply and demand of funds in export commodity production departments.
2. The impact of exchange rate changes on a country's foreign economy
(1) Influence on a country's capital flow
In the long run, when the exchange rate of local currency falls, domestic capital will often flee abroad to prevent the loss of currency depreciation, especially international short-term capital or other investments of domestic banks will also be transferred to other countries to prevent losses. If the local currency exchange rate rises, the impact on capital movement will be the opposite of the above situation. There are also special circumstances. In recent years, when the exchange rate of the US dollar fell in a short period of time, foreign capital poured into the United States for direct investment and securities investment, and made use of the depreciation of the US dollar to obtain greater investment income, which was conducive to alleviating the sharp decline of the exchange rate of the US dollar, but this situation was determined by the special status of the US dollar.
(2) the impact on foreign trade
The depreciation of local currency has the function of expanding domestic exports and restraining domestic imports, which may reverse the trade deficit.
(3) the impact on the tourism sector
Other things being equal, the price of foreign currency expressed in local currency has risen, while the domestic price level has not changed. For foreign tourists, domestic goods and services are cheap, which can promote the increase of domestic tourism and related trade income.
3. The impact of exchange rate changes on a country's gold foreign exchange reserves
(1) The exchange rate change of reserve currency affects the real value of a country's foreign exchange reserves. If the reserve currency appreciates, the real value of a country's foreign exchange reserves will increase, and vice versa.
(2) The change of local currency exchange rate directly affects the increase or decrease of domestic foreign exchange reserves through capital transfer and the increase or decrease of import and export trade volume.
(3) Exchange rate changes affect the status and role of some reserve currencies.