China's Equilibrium Exchange Rate And Exchange Rate System Modulation

From the beginning of the second half of 2002, the RMB's equilibrium exchange rate attracts the attention of governments, academes and media domestic and abroad. In their argues, we found two opposite points of view. One is increasing the exchange rate of RMB, and giving the system more flexibility. Another is maintaining the current rate and system. Although people, who support either the first point or the second, all give then- reasons, they still can not persuade each other. How do we solve this problem? I think we'd better go back to see the "equilibrium price" which is the original agreement of economics. This price is the most efficient and accords with the need of arranging resources, so if we use this concept on the current exchange rate problem, we can find that the rate which is equal to the equilibrium one is optimal.This article includes three parts. In the first part, we explain the concept of equilibrium exchange rate, and point out the adverse effects which exchange misalignment will bring to the economy. In the second part, we use the single equation empirical analysis framework which based on the simple general equilibrium theory to calculate the RMB's equilibrium exchange rate. In the third part, we illustrate the merits, disadvantages, and sustainability of current exchange rate system, and try to find the optimal innovation methods in favor of the continual development of Chinese economy.