Exchange rate, also known as exchange rate, is the exchange rate between the currencies of two countries. China usually takes 100 foreign currency as the standard and converts it into a certain amount of RMB. For example, in September of 1998, 100 USD can be converted into RMB 827. Exchange rate is an important link between domestic and foreign commodity markets and financial markets. Due to various factors, the foreign exchange rate is constantly changing. Exchange rate changes include the depreciation and appreciation of the domestic currency. The impact of domestic currency depreciation on the economy is as follows:
(1) The impact of local currency depreciation on the balance of payments. Depreciation has an impact on import and export income: the depreciation of domestic goods and silk makes foreign people increase their demand for domestic products, while domestic residents reduce their demand for foreign products, which is beneficial to domestic exports and reduces imports; The purchasing power of foreign currency has increased accordingly, and the costs of goods, services, transportation and accommodation in devalued countries are relatively cheap, which is conducive to attracting foreign tourists and expanding tourism development. Liquidity also has an impact. If the devaluation trend continues, people will transfer their funds from their own countries to other countries, resulting in capital outflow.
(2) The impact of local currency depreciation on the domestic economy. After devaluation, a country's trade income tends to increase. The proportion of foreign trade in the whole economic system will expand, thus improving the country's opening to the outside world and allowing more products to compete with foreign products. Depreciation also has an impact on prices: on the one hand, the expansion of exports has caused demand and shaken prices; On the other hand, by raising domestic production costs to push up prices, the impact of currency depreciation on objects will gradually expand to all commodities, resulting in inflation.
(3) The impact of local currency depreciation on the world economy. The exchange rate changes of small countries will only have a slight impact on the economies of trading partners. The currency depreciation of major industrial countries will affect the trade balance of other countries, indicating that it will trigger trade wars and exchange rate wars and affect the prosperity of the world economy. 1997 the Asian financial crisis began with the devaluation of the Thai baht. 1998 yen continued to fall to the lowest point in eight years against the US dollar. This is undoubtedly a heavy blow to Asian countries, causing an uproar in the US stock market and foreign exchange market. China government solemnly declared that RMB will not depreciate. This not only reflects the strength of China's comprehensive national strength, but also shows that socialist China has assumed corresponding international obligations and responsibilities and played an increasingly important role in the international economic arena.