An Empirical Research On The Role Of RMB Exchange Rate Adjusting China's Imbalance Of International Payments

In recent years, China's balance of international payments has continuous surplus in the current account as well as the capital and financial account. The external imbalance influences the internal balance. So there are some serious problems with China's balance of international payments. According to the traditional economic theory, the fluctuations of the exchange rate can affect both the balance of trade and the foreign trade of a country. According to the classical international trade theory, the devaluation of the exchange rate can improve the balance of trade by increasing exports and inhibiting imports. An empirical research is conducted to analyze the influence of RMB real effective exchange rate fluctuation on China's balance of international payments in this article. A few suggestions on China's policies are submitted according to the result of the research.In the process of theoretical analysis, this paper gives a theoretical review of the relationship between the exchange rate and balance of payments. It is the basis of exchange rate's adjustment on the balance of payments. This paper first introduces the relationship between exchange rate and balance of payments related to the theory, and then summarizes the empirical research methods both at home and abroad, finally proposes the empirical research method of this article.In the process of empirical analysis, this paper conducts analysis in the current account and capital account separately. First, It uses cointegration analysis to study the long-term relationship between the exchange rate and trade balance , and then uses the vector error correction model to study the short-term relationship between the variables. This section divides the sample into two parts according to the exchange rate reform in 2005 and makes a comparison. It is also an innovative point of this article. The results showed that in these two stages, the RMB real effective exchange rate and trade balance have long-term cointegration relationship, but the impact of the exchange rate on the trade balance is not significant. So, the RMB real effective exchange rate is not the most important factor affecting the trade balance.The empirical analysis of the RMB real effective exchange rate's impact on China's capital and financial account focuses on analysis of the RMB real effective exchange rate's impact on FDI. Finally we come to the conclusion that the RMB real effective exchange rate is not the most important factor affecting the actual use of FDI in China.Based on the conclusions that: the RMB real effective exchange rate is not the most important factor affecting China's Balance of payments, so we can not use exchange rate to change the imbalance of international payments. Then the last part of this article analyzes the causes that lead to the imbalance of international payments. The root cause is the internal structural imbalance of China's economy. There are also some other causes. Due to the increasingly complex and diverse causes, we should take measures from all side. The coordination of industrial, fiscal , monetary and exchange rate policy become very important. Only if all aspects of policies coordinate with each other, the balance of international payments will be truly realized.