Influence Of Rising Exchange Rate On Trading Balance

Trade balance takes up an important part in balance of payments, which is of great importance in the economic development of a country. Exchange rate is one of the most important components that impact the trade balance, whose appreciation or depreciation has a great effect on balance of payments. There is unprecedented pressure that compels RMB exchange rate to increase, because a volume of trade surplus and foreign exchange reserve have been accumulated in the fast development of international trade of our country. From the reform of exchange rate in July, 2005, RMB has increased 3 percent in exchange rate in accumulative total. If RMB continue to increase in value in the future, what the impact will be on trade balance of China is a big problem to study. So the effect of exchange rate changes on trade is the main research purpose of this text, and special attention will be put on the relationship between RMB exchange rate and the trade balance of China. On the basis of the review of the existed theory, this article has a theoretical analysis and experience examination on the effect of exchanges on the trade balance, finally we come to a conclusion that the impact of appreciation on the trade surplus is limited. Meanwhile, considering the harmful effects that may be produced to the trade of our country, we put forward some concrete measures.This article describes relevant problem in five parts. In the first section the background and the purport of this article are brought forward, and the researches about the relationship between exchange rate changes and the trade balance are reviewed. In the section two the basic theory relevant is reviewed and the approach that how the exchange rate changes impact the trade balance is analyzed. The third section reviews the fact that appreciation and trade surplus coexist in Japan, prove the result that one money appreciation do not always cause the deterioration of international trade balance. The fourth section pays attention to the history of RMB exchange rate, sets up model, and does a demonstration and comes to the conclusion that in long term RMB exchange rate appreciation will not have a huge negative impact on the trade balance. By comparing with the appreciation of JP Yen, a similar conclusion can be elicited. The fifth part summarizes the analysis conclusion of the foregoing paragraphs, exchange rate is not the most important component that influents trade balance; one money appreciation not always cause the deficit of international trade balance; exchange rate appreciation has a limited negative impact on trade balance in long term. According to the preceding research conclusion, this article proposed finally that we should release the pressure of appreciation on RMB exchange rate; promote the trade utilizing"skewing"of RMB appreciation; and pay attention to the long-term medium to long term equilibrium of trade balance.