The Impact Of The Fed Interest Rate Hike On The RMB Exchange Rate

As an important measuring tool in the communication between countries,exchange rate is the link between domestic and foreign economy.Exchange rate price and exchange rate fluctuation between countries are the elements to promote international economic and political linkage,the symbol to regulate domestic capital and international capital mobility,and the core to communicate domestic and foreign economic level and purchasing power value.As a core element of open economy,RMB exchange rate not only plays a vital role in international trade,but also plays an immeasurable role in the development and operation of domestic and foreign economic environment.In recent years,due to the continuous initiation of the fed's interest rate hike process,the trend of China's RMB exchange rate has experienced great fluctuations.In December 2015,the federal reserve started the first interest rate hike after the financial crisis and entered a new round of interest rate hike cycle,which also became an important reason for the rapid depreciation of the RMB after the "811" exchange rate reform.At present,the impact of the fed's interest rate hike policy on the RMB exchange rate has become a hot topic in the international financial academia.Exploring the impact path of the fed's interest rate hike on the RMB exchange rate is conducive to providing corresponding policy suggestions for China to continue to promote the internationalization of the RMB and timely prevent the risks of the RMB exchange rate.This paper from two aspects: capital market way and international trade way of in-depth analysis of the influence of the federal reserve to raise interest rates for theRMB exchange rate.After that,it elaborates the trend and characteristics of RMB exchange rate fluctuation and fed interest rate hike in detail through empirical analysis.And finally it builds the VAR vector autoregressive model,selects the monthly data of the US dollar against the RMB exchange rate from July 2005 to December 2018 as the explanatory variables,the US federal funds rate level,China's money supply and price level as explanatory variables for the empirical analysis,from the federal reserve to raise interest rates for direct effects and indirect effects of the RMB exchange rate,by using impulse response function and variance decomposition method,this paper empirically analyzes the influence of fed rate hike on the exchange rate of us dollar to RMB exchange rate.The research results show that,on the one hand,the fed's policy of raising interest rates affects the RMB exchange rate through the interest rate level in the United States,on the other hand,it affects the RMB exchange rate by affecting China's money supply and price level.Both direct and indirect factors affect the supply and demand relationship between the RMB and the US dollar in the foreign exchange market through capital market channels and international trade channels,which ultimately leads to the rise of the RMB exchange rate,that is,the depreciation of the RMB.Judging from the contribution rate of the impact on the RMB exchange rate,the US federal funds rate level and the Chinese price level have a greater impact on exchange rate changes.With the gradual opening of China's capital controls,the impact of interest rate levels will continue to increase.Finally,the paper puts forward the following policy recommendations: First,accelerate the market-oriented reform of the RMB exchange rate;Second,guide the orderly flow of cross-border capital;Third,formulate a more flexible monetary policy;Fourth,vigorously promote the internationalization of the RMB and “ The Belt and Road Initiative;Fifth,improve the financial system and accelerate financial innovation.