Because the depreciation of the RMB reduces the price of domestic goods abroad, it is conducive to expanding exports and reducing imports.
Factors affecting the rise and fall of currency exchange rates: 1. The most important influencing factors of the international balance of payments. If a country's international balance of payments is in surplus, its foreign exchange income is greater than its foreign exchange expenditure, its foreign exchange reserves increase, and the country's supply of foreign exchange is greater than its demand for foreign exchange. At the same time,
When foreign demand for the country's currency increases, the country's foreign exchange rate will fall and the domestic currency will appreciate externally; if it is a deficit, the reverse is true.
2. Inflation rate Any country has inflation. If the domestic inflation rate is higher than that of foreign countries, the domestic currency will depreciate externally and the foreign exchange rate will rise.
3. Interest rates The impact of interest rate levels on foreign exchange rates is through the differences in interest rates in different countries, which promote short-term capital flows and lead to changes in foreign exchange demand.
If a country's interest rate increases, foreign demand for the country's currency increases, and the country's currency appreciates, its exchange rate will fall.
4. Economic growth rate If a country has a high economic growth rate, its currency exchange rate will be high.
5. Fiscal deficit If a country's fiscal budget has a huge deficit, its currency exchange rate will fall.
6. Foreign exchange reserves If a country has high foreign exchange reserves, the country’s currency exchange rate will increase.
7. Investors’ psychological expectations Investors’ psychological expectations are particularly prominent in the international financial market.
Exchange psychology believes that the foreign exchange rate is a concentrated expression of the subjective psychological evaluation of currency by both the supply and demand sides of foreign exchange.
If the evaluation is high and the confidence is strong, the currency will appreciate.
This theory plays a crucial role in explaining numerous short-term or very short-term exchange rate fluctuations.
8. The impact of various countries’ exchange rate policies.
Extended information: Methods of analyzing currency exchange rates 1. Elastic analysis method Elastic analysis method is based on Marshall's microeconomics and partial equilibrium analysis methods. Joan Robinson, a professor at the University of Cambridge in the United Kingdom, studies international balance of payments adjustments, especially currency devaluation to improve a country's international balance of payments.
The theory of conditions is the theory that most directly studies the international balance of payments effect of currency depreciation.
The basic conclusion of the elasticity analysis method is that in order to improve the international balance of payments through devaluation of the local currency, the Marshall-Lerner condition must be met, that is, the demand elasticity of the country's export commodities (ex) and the demand elasticity of the country's import commodities (em
) must be greater than 1, that is: em+ex>1.
There are also some assumptions in the elasticity analysis method, including the elasticity of the supply of domestic export commodities that is infinite.
Analyze and study the contemporary international market. Fierce competition, oversupply, and non-tariff barriers such as import quotas and import licenses have resulted in insufficient demand elasticity. Most of the imports from devaluing countries are high-tech production equipment or in-demand daily necessities.
It is insensitive to price increases, and due to the difficulty in adjusting the industrial structure or limited idle resources, especially capital, and the difficulty in forming sufficient supply elasticity advantages for domestic export commodities, it is difficult to avoid the failure of the international balance of payments effect of exchange rate changes.
2. Monetary analysis method Monetary analysis method is a theory used by economists Ronat Mundell and Harry Johnson of the University of Chicago in the 1970s to study issues of regulating the international balance of payments using the monetarist theory.
The main theory accepted and adopted by the International Monetary Fund (IMF) is the monetary analysis method.
The basic equation of the monetary analysis method is: r=md-d. In the formula, r represents the base of money supply from abroad, md represents the demand for domestic nominal money, and d represents the domestic nominal money supply.
A positive r indicates a balance of payments surplus, and a negative r indicates a balance of payments deficit.
This equation tells us that the balance of payments deficit actually means that the domestic nominal money supply exceeds the domestic nominal money demand. Therefore, the balance of payments is a monetary phenomenon.
3. Absorption analysis method Absorption analysis method is an international balance of payments adjustment theory based on Keynesian macroeconomics proposed by Sidney Alexander and other economists in the 1950s. This theory starts from Keynes's national income equation.
, studied the impact of total income and total expenditure on the balance of payments, and put forward corresponding policy propositions.
The basic equation of the absorption analysis method is: b=y-a. In the formula, b represents the balance of international payments, y represents national income, and a represents total absorption, that is, the sum of a country's consumption and investment.
This equation tells us that when national income is greater than total absorption, the balance of payments is in surplus; when national income is less than total absorption, the balance of payments is in deficit; when national income is equal to total absorption, the balance of payments is in equilibrium.
The absorption analysis method examines the impact of devaluation on the balance of payments from an overall macroeconomic perspective.