2. Exchange rate instruments are often used to adjust a country's international balance of payments imbalance. Governments all hope to use exchange rate instruments to restore the unbalanced international balance of payments, especially when a country's international balance of payments is in deficit. It is hoped that through the devaluation of the local currency, on the one hand, the foreign currency prices of domestic exports will be reduced, and the price competitiveness of domestic exports will be enhanced in the international market, thus promoting exports and increasing exports. On the other hand, the local currency prices of foreign imports will be increased and reduced. In short, through the downward adjustment of the local currency exchange rate, exports will be expanded and imports will be reduced, so that the trade balance and even the balance of payments deficit will be reduced, balance will be restored, and even a surplus will appear.
3. The devaluation of the local currency did not improve the balance of payments in time or at all, and even worsened the balance of payments. It increases a country's balance of payments deficit, which we call the failure of the balance of payments effect of currency depreciation. The failure of the balance of payments effect of currency depreciation has always existed, but it has become particularly prominent in recent years. In the Southeast Asian financial crisis in 1997, currencies of countries such as Thailand, Malaysia, Indonesia, the Philippines, Singapore, and South Korea all depreciated between 3% and 7%, and the extent of depreciation was rare. However, the balance of payments of these countries has not been fundamentally improved for a long time. In recent years, the currencies of Russia, Turkey, Brazil and Argentina have also depreciated seriously, but the effect of currency depreciation on improving the balance of payments is not obvious. On the contrary, China withstood the impact of the financial turmoil in Southeast Asia in 1997, and insisted on not depreciating the RMB. In fact, the RMB exchange rate was steady and rising, but China's balance of payments was getting better year by year, and its foreign exchange reserves increased year after year, from less than $14 billion at the end of 1997 to more than $25 billion at the end of 22. Why does the exchange rate depreciation effect fail, and the RMB does not depreciate, but the balance of payments surplus increases? This problem deserves serious discussion.
The reason for depreciation
As an important part of international financial theory, the balance of payments adjustment theory studies the decisive factors of balance of payments, the causes of balance of payments imbalance and the adjustment measures to eliminate it. The theory of balance of payments adjustment has always been widely and deeply studied by economists. They discuss the conditions for the balance of payments to recover from imbalance from different levels and angles, and put forward different policy proposals to solve the imbalance of balance of payments, among which elastic analysis, monetary analysis, absorption approach and structural analysis are the most representative. Cartoon of currency devaluation
Although most of the international balance of payments adjustment theories do not specifically discuss the failure of the international balance of payments effect of currency devaluation, various international balance of payments adjustment theories all discuss the necessary conditions, or preconditions or hypothetical conditions for improving the international balance of payments by using local currency depreciation measures. When these assumptions are not established or the preconditions are not met, their conclusions will be biased, that is, the "failure" problem. On the study of the failure of contemporary currency depreciation in adjusting the balance of payments effect, we find that because these assumptions are not established or the premise is not satisfied, as explanatory variables, they can explain the reasons for the development of some failure problems.
Currency devaluation (also known as currency devaluation) is the symmetry of currency appreciation, which refers to the decline of the value contained in or represented by unit currency, that is, the decline of unit currency price. Currency devaluation can be understood from different angles. From the domestic point of view, currency devaluation under the metal currency system refers to the measures to reduce the legal metal content of domestic currency and its price against metals, so as to reduce the value of domestic currency; Currency devaluation in the modern paper currency system refers to the decline in the value of paper currency when the number of paper currency in circulation exceeds the required currency demand, that is, currency inflation. From an international point of view, currency value is expressed as the ability to exchange with foreign currencies, which is specifically reflected in the change of exchange rate. At this time, currency depreciation refers to the decrease of the ability of a unit of domestic currency to exchange foreign currencies, while the foreign exchange rate of domestic currency declines. For example, if US$ 1 is exchanged for 3 yuan RMB last year and 4 yuan RMB this year, the RMB will depreciate. Currency devaluation causes price increase in China. However, because currency devaluation can stimulate production under certain conditions, and reduce the price of domestic goods abroad, it is conducive to expanding exports and reducing imports. Therefore, after the Second World War, many countries regard it as a means to counter the economic crisis and stimulate economic development.