Analysis Of The Impact Of The RMB Exchange Rate Changes On China’s International Trade Balance

Since1994, China has been reforming the exchange rate regime of Chinese Yuan and build up a floating exchange rate system based on marked supply and demand and market supervision. Since then Chinese Yuan trend to appreciate. At the same time, China’s being surplus in international business makes it important to study how the impact of RMB exchange rate change changes on China’s trade balance. Article analyze the studies inland and aboard to judge the different method and then summarize an appropriate way to analyze the impact of RMB exchange rate change changes on China’s trade balance and take Anhui Province as an example. Article uses RMB real effective exchange rate to accurately reflect the RMB real fluctuate in the international market.. So that how the change of RMB exchange rate impact Chinese international trade based on China’s national condition could be analyzed. All the analyses should be base on the effect of relationship between exchange and international balance of payments. If the adjustment of RMB exchange would change China’s huge surplus in international balance of payments has important theoretical and realistic significance to both ademic research or policy discussion. Article combines the theory analysis and positive analysis and concentrate on relative theories of exchange and international balance of payments. Firstly, I would analyze the different theories to judge the different study methods and systems as to choose a best theory as the base of my analysis. Then article summarize the constraint (Incomplete pass, crowding-out effect, inflation effect and policy effect)which affects the balance of payments to do the causal analysis to provide reference frame for policy-making. Then the article does some empirical analysis of the impact of the RMB exchange rate changes on Anhui’s trade balance. The methods involved in this article include:square root test, co-integration test, Granger causality test, pulse response function etc. Using these methods, the real effective exchange rate and other factor are quantitative analysized to test if there is dependency between them. Then the result comes out. With the appreciation of RMB, the results of RMB appreciation is much focused on. Based on the theory and reality analysis, article tries to figure out the limitation of the improvement that RMB appreciation brings to China’s trade balance which are. At last, according to the research above, article gives some suggestion to the RMB policy:1, the steady exchange police brings steady trade balance;2, strengthen the management of the exchange risk.