The Research On The Objects And Effects Of Exchange Rate Policy In China

On June19,2010, the People’s Bank of China announced to restart the reform ofthe RMB exchange rate system. By sorting out the relevant theory and combiningwith China’s macroeconomic policies, the paper concludes that China’s exchange ratepolicy object is to maintain internal and external balance, to reduce exchange raterisks and to maintain export competitiveness and reduce import costs. This paperselects the yuan-dollar exchange rate, real effective exchange rate index and calculatesthe equilibrium exchange rate to verify the effects of exchange rate policy. Theanalysis found that the effect of the exchange rate policy was not significant in Chinasince the exchange rate reform. In response to these issues，this paper presents thecorresponding policy recommendations.The first part is introduction. It introduces the research background, the researchsignificance as well as domestic and foreign research results.The second part is the theoretical basis. This part firstly clear the connotation ofexchange rate policy.Then it focuses on the evaluation of the relevant theory onexchange rate policy effects.The third part sorts China’s exchange rate policy objectives. This paperdetermines that China’s exchange rate policy goal is to reduce exchange rate risk,stabilize the export competitiveness and reduce the cost of imports, maintain internaland external equilibrium.The fourth Part firstly analyzes the yuan-dollar exchange rate fluctuations. Thenit compares Fudan RMB real exchange rate index and simulation of a basket ofcurrencies exchange rate index. This section also calculates the equilibrium exchangerate of China and compares it to the BIS announced RMB real effective exchange rateindex. The results show that China’s exchange rate policy does not achieve the desiredresults.Part five of this article is conclusions and policy recommendations. In responseto these problems, this paper presents the policy recommendations.