The appreciation of RMB is a double-edged sword, which can bring us benefits, but also has certain negative effects. In this regard, in the face of appreciation, we should follow the three principles of “initiative, controllability and gradualness” put forward by our Prime Minister a few years ago. the
First, the impact of RMB appreciation on domestic prices.
From a short-term perspective, the impact of RMB appreciation on domestic price changes is relatively limited. The level of appreciation changes, to some extent, reflects the changes in the country’s economic strength. It is understood that the trend of exchange rate changes is positively correlated with the fundamentals of the country’s economic growth. Under the condition that other conditions remain unchanged, as my country’s economy continues to prosper, the RMB will also maintain a state of appreciation. In the long run, RMB appreciation can curb inflation. But studies have shown that the magnitude of this inhibition is uncertain. Appreciation of the renminbi can reduce the import cost of Chinese enterprises, because most international commodities are denominated in US dollars, and the appreciation of the renminbi means that enterprises only need to pay a relatively small amount of RMB to purchase the same amount of international products. However, from July 2005 to the present, the RMB has only appreciated by 21% in more than three years. However, the price of my country’s imported commodities rose by 20.9% in only three months in the second quarter of 2008. Obviously, such a small appreciation of the RMB is far from being able to offset the inflationary impact of rising international commodity prices on my country. Appreciation rate is only weak to ease the pressure of my country’s imported inflation.
Second, the impact of RMB appreciation on employment.
Appreciation of the renminbi in China will exacerbate domestic employment pressure. Most of my country’s export enterprises are labor-intensive enterprises. After the appreciation of the renminbi, the export of domestic enterprises will decline, production will decline, and profits will decrease, which will cause enterprises to have to lay off employees. Moreover, foreign investment will also decrease, job demand will also decrease, and employment pressure will inevitably increase.
Finally, the impact of the RMB on the production sector.
An appreciation of the RMB would lead to increased competition in domestic production. Manufacturers of some export products will join the ranks of domestic market competition. The main advantage of China’s exports is the cheap labor force due to the existence of the exchange rate and the large population. The appreciation of the RMB will cause the loss of the original advantage of my country’s export and the weakening of the competitive advantage of export. In addition, the appreciation of the renminbi is a tightening monetary policy, which is mainly used to deal with inflation. Tight monetary policy does not encourage enterprises to produce and export in large quantities. As in the latest tightening monetary policy, a large number of export-oriented small and medium-sized enterprises closed down, causing my country to quickly turn from inflation to deflation. In this case, some enterprises may face the danger of bankruptcy.
