Currency Substitution On The Net Worth Of China's Trade Disturbance Analysis

Currency substitution refers to that,under the open economic and convertible currencies conditions, the some or all function of currency of the currency is taken place by foreign currency. The essence of the phenomenon is monetary disturbances, such as monetary policy, fiscal policy and exchange rate disturbances. The disturbance of Currency substitution on exchange rate is that exchange rate vibrates more and more frequently. Currency substitution on exchange rate of the disturbance is also a logical starting point of the paper.In general, if a country's exchange rate remained stable during a period, it can provide an important support for foreign economic development, and the total imports and exports will have a greater development. Under the exchange vibrating condition, the import and export will meet much more difficulty. This is the value of the paper on disturbance of currency substitution to country's net trade and inner logic.Based on the transmission chain of currency substitution to exchange and exchange to international trade, we analyzed the reason of currency substitution and the trend of currency substitution in our country. Through the study, we found that our country present a phenomenon that currency substitution rate was lower than some countries. In the paper we summarize the specific reason into our economic situation. The phenomenon that currency substitution existed in our country mainly lies in our national sustainable economic growth and the expansion of foreign trade, and the reason why currency substitution was so low could be summarized into RMB appreciation and relative relatively slow growth and Foreign exchange control policy.Finally, based on Frenkel's flexible price theory on currency exchange rate determination and R. Dornbusch's sticky price model theory on exchange rate decision, the study, beginning with the impact of current account on the supply of currency, analyzes the effect of currency substitution to the net value of trade and the instability of currency substitution. The empirical results confirmed that the instability of currency substitution was able to course a contrary impact on trade, and the specific result also exist great difference at different times. Meanwhile, according to the analyses, we supply the specific suggestion on how to prevent the currency substitution.