| For the past 2 years, exchange rate between US dollar and some major currencies has dropped continuously in the exchange foreign market. For example, The exchange rate between US dollar and Euro has declined 33% since beginning of 2002 which aroused common concern in the international community. In this article, we will discuss the reason why the policy of US dollar exchange rate has turned from be a leading position to a gradual weaking status, which may last for a long time ,by analyzing the historic change of dollar position and reasons. Depreciation of US dollar is the results of many factors, such as the double debts of US treasury and trade, a main driving force of a weaking dollar and some policy factors aimed to boost export, prevent a possible deflation to promote an economic growth. As well as some complicted factors, the depression of US dollar has great effect on economic growth.For US itself, both negative and positive, and in the long term, it will help to stabilize US economic development. The current downward trend of US dollar will enhance the competition of American goods in the international market, cutting trade deflects and increasing companies'profits. And it will maintain the sustainable growth of US economy. On the negative side ,first of all, the price hike of importing goods will cause corresponding price increase in its domestic market, flooding US economic recovery. Secondly, the weaking US dollar will discourage its foreign capital flow, hurting US investment market. They are Japan and European union to assume the cost of adjusting US. The appreciation Japanese Yuan and Euro will reduce their exporting products'abilities for competition. These two countries'exporting, even the economic growth will be influenced negatively.Overall, the devaluation of US dollars will bring changes to the recovery of the world's economy. Generally considered, it will have a series of obvious , even profound impact on the world economy development structure. Further, the depreciation of US dollar is one of the strategies in USA macroeconomics policies. It is also the result of American government's foreign exchange rate systems. The exchange rate should be decided by market. It is both a political approach and a economic means. The devaluation of US dollar has both negative and positive impact on our country's economic growth on 21th. July, 2005, China's government issued a new policy perfecting RMB exchange regime, that is a basket of currencies will be involved in the formation of RMB exchange rate with corresponding proportions rather than PEG to USD which fully takes into consideration of the current situation of China's international trade. Though RMB won't be a peg to US dollar will have great effect on RMB exchange rate inevitably. It means that it will promote the export to those countries in which US dollar isnot used as their native currencies. In terms of capital flow, the devaluation of US dollar stimulates foreign capital to invest more in China. Therefore, China's economy benefits a lot from this devaluation, such as expanding export continuously, attracting foreign capitals and increasing foreign exchange reserves. Of course, the change of foreign exchange rate has its another side of a coin. There are also some negatives that China's foreign exchange assets valued in US dollar will be depreciated. USD makes up larger part of China's foreign exchange assets, bout over 60%. The depreciation of USD will cause lots of loss evidently. On the other side, this depreciation may have some negative results on capital item. First, it will reduce the value of China's overseas net capital directly which it will add China's foreign debts. The devaluation of USD will induce the oil price and the importing cost of raw material's to rise, restricting China's economy development. The continual drop of USD foreign exchange rate will also give China's economy policies a strike inevitably, such as in order to maintain the stability of RMB exchange rate. China has lowered the rate of export rate, broaden the amount of foreign currency for its residence to carry abroad and raised the reserve rate. Around the world, a small amount of countries and some benefit seeking groups have asked for an appreciation of RMB, which has caused ever-increasing great pressure and led to a series of trade conflicts. In this context, we not only have to pay attention to the opportune offered by the depreciate of US dollar, take the chance to increase our export volume,, improve our current account situation, enlarge the intricate effect of overseas demand to economic growth, but also, we have to face up to the challenge imposed to our economic development, adjust our current economic policy, strengthen the finance supervision and the structure of foreign currency reserve, raise the proportion of ponds in our foreign currency reserve, improve regional cooperation, prevent the possible impact of external and international market fluctuation, and enhance our anti-risk capacity.Meanwhile, we need to note that a stable RMB exchange rate which supports the increase of export and the bring-in of foreign capital is required for our current economic situation. As we can see, a stable RMB exchange rate is of beneficial sign finance to the substantial and steady development of the economics and financial industry of china , its neighbor countries and surrounding region and the whole globe in the large sense. |
PDF Full Text Request