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Chapter 26 What Does Currency Devaluation and Appreciation Mean——International Trade Economics You Must Understand (1)
A person who often travels abroad or engages in international business will be very sensitive to the foreign exchange rate of the RMB.When the renminbi appreciates, you can exchange the same amount of renminbi for more foreign currencies; when the renminbi depreciates, you can only exchange the same amount of renminbi for less foreign currencies.The exchange rate between RMB and foreign currency is called the exchange rate of RMB in economics.

Even if you don't go abroad, you can be indirectly affected by the exchange rate.When the RMB depreciates, the foreign currency settlement price of China's export commodities will drop, and the commodities produced in China will have a price advantage in the international market, the orders will increase, the business of your factory will prosper, and your bonus will increase; When the renminbi appreciates, the price advantage of Chinese manufacturers will be lost, and Chinese goods cannot be sold, which will affect the income of Chinese business owners and workers.The United States blamed China for the large number of bankruptcies of its local manufacturers, repeatedly demanded the appreciation of the renminbi, and threatened the Chinese government to take measures by including China as a currency manipulator.It can be seen that the exchange rate issue is not only related to the livelihood of ordinary people, but also an area of ​​international political games.

By studying the economics of international trade in this chapter, you will be able to understand the trade pattern and economic trends between China and the world.

Exchange Rate: The ratio of the exchange rate between the currencies of two countries
One day, an alien visited the earth and saw two fruit trees on the earth. One was planted in Europe and the other was planted in China. I will buy your fruit and eat it."

The people on earth said: "Okay, but you must first determine where you can buy it: if you go to China, you can buy it for 1 yuan; if you go to Europeans, you can buy it for 1 euro."

The alien said: "Then I will buy one for 1 euro."

The people on earth said: "Wait a minute! In fact, you don't need to spend money. You can borrow 1 fruit from China and exchange it for 1 euro in Europe. If you take 1 euro to China, you can exchange 10 fruits and return 1 fruit. If you give it to the Chinese, you will get 9 fruits for nothing. You can exchange 9 fruits for 9 euros, and then go to China to exchange 90 fruits. What a fruit—if this goes on like this, all the good things in China will be bought up by you!"

The alien said: "How can there be such a good thing! Then why don't the Chinese go to Europe to sell it at a good price?"

People on earth said: "The relevant Chinese regulations stipulate that 10 yuan = 1 euro, which means that 10 Chinese fruits = 1 European fruit! Because China believes that as long as it can export and earn foreign exchange, it is a victory, no matter how many resources it loses. Now many people Dumping Chinese goods cheaply to foreign countries is to take advantage of the price difference. They don't want to sell at the highest price in Europe, they just want the fastest, but they already have huge profit margins. No matter how much Chinese goods are wasted, as long as they can earn Money is enough, and once you make money, you can go to China to buy goods, that’s the reason.”

Exchange rate is also called foreign exchange market or exchange rate.The exchange rate of one country's currency to another country's currency is the price of one currency expressed in another currency.Since the names and values ​​of the currencies of various countries in the world are different, a currency of one country must have an exchange rate for the currencies of other countries, that is, the exchange rate.

Exchange rate is the most important adjustment lever in international trade.Because the cost of goods produced in a country is calculated in its own currency, if it wants to compete in the international market, the cost of its goods must be related to the exchange rate.The level of the exchange rate will directly affect the cost and price of the commodity in the international market, directly affecting the international competitiveness of the commodity.

For example, for a commodity worth 100 yuan, if the exchange rate of the U.S. dollar to the yuan is 8.25, the price of this commodity in the international market is 12.12 U.S. dollars.If the USD/RMB exchange rate rises to 8.50, which means that the USD appreciates and the RMB depreciates, the cost of the product in the domestic market will actually be lower, which will directly lower its price in the international market.The lower the price of the commodity, the stronger the competitiveness, and it will definitely sell better, thereby promoting the export of the commodity; on the contrary, if the exchange rate of the US dollar falls to 8.00, that is to say, the depreciation of the US dollar and the appreciation of the renminbi will definitely benefit the export of US commodities.Similarly, an appreciation of the dollar and a depreciation of the renminbi will benefit the export of Chinese goods to the United States; conversely, a depreciation of the dollar and an appreciation of the renminbi will greatly stimulate U.S. exports to China.

One of the important considerations for Japan and the United States to demand RMB appreciation is that RMB appreciation can greatly increase the cost of China’s export products in the international market, which can damage the competitiveness of Chinese products and in turn stimulate China to import a large amount of their products. .During the Asian financial crisis, if the RMB depreciated, the financial crisis in other countries would be even worse.

It is precisely because exchange rate fluctuations will bring such large-scale fluctuations in import and export trade that many countries and regions have implemented relatively stable currency exchange rate policies.The rapid and steady growth of import and export in Mainland China is largely due to the stable RMB exchange rate policy.Factors that affect exchange rates generally include:
(1) Balance of payments.If a country's balance of payments is in surplus, the exchange rate of the country's currency will rise; if it is in deficit, the exchange rate of the country's currency will fall.

(2) Inflation.If the inflation rate is high, the country's currency exchange rate is low.

(3) Interest rates.If a country raises interest rates, the exchange rate rises.

(4) Economic growth rate.If a country has a high economic growth rate, the country's currency exchange rate is high.

(5) Fiscal deficit.If a country runs a large deficit in its fiscal budget, its currency exchange rate will fall.

(6) Foreign exchange reserves.If a country's foreign exchange reserves are high, the country's currency exchange rate will rise.

Renminbi Appreciation: A Good Thing or a Bad Thing?

The renminbi has been appreciating continuously since 2007, and in 2014 it broke through the threshold of 1:6.1 against the US dollar.Since the reform of the RMB in 1994, this is the first large-scale appreciation of the RMB due to domestic and foreign pressures. Regarding the appreciation of the RMB, some people think it is a good thing, while others think it is a bad thing. Different people have different opinions. the opinion of.So, is RMB appreciation good or bad?How much impact does it have on ordinary people?How to deal with the appreciation of the renminbi?
Some people think that the appreciation of the renminbi makes money more valuable, that it is cheaper for ordinary people to travel abroad, buy imported cars with original packaging, and Swiss watches, and it is cheaper for large companies to annex enterprises abroad...Why does the United States make great efforts to force the renminbi to appreciate?Are Americans stupid to make their country's money worthless?In fact, we can see the truth from the appreciation of the yen against the US dollar.

In 1985, the United States, Britain, France, and the Federal Republic of Germany held a meeting at the Plaza Hotel in New York, forcing Japan to sign the famous "Plaza Agreement". After signing, in less than 1 months, it quickly fell to around 250 yen, a drop of 3%.By 200, the lowest value of 20 dollar against the yen reached 1987 yen. In less than 1 years, the dollar depreciated against the yen by 120%, that is to say, the value of the yen against the dollar doubled.At that time, the Japanese also thought that they became rich overnight, but the fact is that the blow to the Japanese economy has not slowed down after 3 years!

The benefits of the appreciation of the renminbi to the rich are indeed obvious. For example, if the renminbi appreciates against the U.S. dollar, it used to be 8.5 yuan for 1 U.S. dollar, but now it can be exchanged for less than 7 yuan. It is cheaper to go abroad to play and buy properties. People's money is worth more.

Boss Zhang is a person who talks about the appreciation of the RMB, because this time he traveled to the United States and spent less money to enjoy the same service. He used to pay 1 yuan to stay in a hotel, but now it costs 8000 yuan. .Moreover, he also bought a large number of commodities to bring back to China. Boss Zhang felt that the depreciation of the US dollar and the appreciation of the renminbi have brought many benefits to people like him.

The appreciation of the renminbi means that the money in people's hands is more valuable.In the past, 8 yuan could be exchanged for 1 US dollar, but now 6 yuan can be exchanged for 1 US dollar. According to the theory of purchasing power parity, each unit of currency should buy the same amount of goods in different countries. One yuan can buy one apple in China, and it can also buy one apple in the United States. One dollar can buy 1 apples in the United States, and it can also buy 1 apples in China.But now that the renminbi has appreciated, 1 U.S. dollar can only be exchanged for 1 yuan. In China, you can buy 7 apples. In China, 7 yuan can be exchanged for 1 U.S. dollar, but in the United States, you can buy 6.2 apples.For wealthy people who can travel abroad, the appreciation of the renminbi has many benefits. They can exchange the same renminbi for more dollars and buy more commodities internationally.

Unlike Boss Zhang, Boss Liu's life has become extremely difficult due to the appreciation of the renminbi.Boss Liu is in the import and export business. He has an export company that purchases goods and ships them abroad every year.Due to the impact of the appreciation of RMB, Boss Liu’s orders not only decreased a lot, but also the American customers mostly settle in US dollars, and the RMB exchanged after settlement is less, and then used the exchanged RMB to purchase goods, and found that the prices have also risen, while the US customers The customer's price has not changed, and after converting it back to RMB, he finds that the profit is getting thinner and thinner.

Renminbi appreciation is the most unfavorable to export enterprises, because the same goods need to be exchanged for US dollars, and then converted back to RMB, while the US dollar is relatively depreciated. For example, 10 US dollars can be exchanged for 80 RMB, but now 10 US dollars can only be exchanged for 70 RMB.At the same price, due to the appreciation of the renminbi, the income has decreased by 10 yuan out of thin air.At the same time, the appreciation of the renminbi has actually affected the prices of domestic commodities. For example, Boss Liu in the above example did not understand that not only did he get less money in exchange, but also the cost of purchasing goods increased. What is going on?

Ordinary people only hear about the appreciation of the renminbi in the news, and feel that money should be worth more.I used to be able to buy 1 catty of cabbage for 1 yuan, but now I can buy 1 catty of cabbage for 5 yuan and 1 cents. In this way, my money is even more worthless.

This is because the appreciation of the renminbi will lead to more people willing to hold the renminbi. Ordinary people don’t feel it. It seems that such a small appreciation has no effect on themselves, but individuals or financial institutions that hold a large amount of funds are very sensitive to this, even if Just appreciate a little bit.Their wealth can thus increase or decrease a lot.For example, if a person has 80 billion yuan, he can convert it into 10 billion U.S. dollars.But now after the appreciation of the renminbi, he can exchange 60 billion U.S. dollars with only 10 billion yuan, earning 20 billion yuan in vain.As the trend of RMB appreciation has been rising, the expectation of RMB in the future is more optimistic, believing that it will continue to appreciate, so a large number of foreign currency institutions began to reserve RMB.The greater the demand for RMB, the higher the value of RMB.And a large amount of renminbi will inevitably flow into the Chinese market, because only China consumes renminbi.This will cause inflation in China and increase prices.Therefore, after the appreciation of the renminbi, ordinary people did not get much benefit, especially for exporters.Those who like to travel and shop abroad, like wealthy Boss Zhang, welcome the appreciation of the renminbi.All in all, RMB appreciation has both advantages and disadvantages. It is a "double-edged sword", and we should treat it cautiously and rationally.

Foreign Trade: Globalization is Coming to Us

A mother gave an orange to two neighbor's children.The two children discussed how to divide the orange.After arguing and arguing, the two finally reached an agreement that one child would cut the oranges and the other would choose the oranges.As a result, the two children each got half of the oranges according to the agreed method, and happily took them home.

The first child took half an orange home, peeled off the skin and threw it into the trash can, and put the pulp in the juice machine to make juice for drinking.Another kid went home and scooped up the pulp and threw it in the trash, and saved the orange peel to grind it up and mix it in flour to bake cakes.

From the above situation, we can see that although the two children each received a seemingly fair half, however, they did not make the most of what they got.This shows that they did not communicate well in advance, that is, the two children did not declare their respective interests.The failure to state the value in advance led both parties to blindly pursue fairness in form and position. As a result, the respective interests of both parties were not maximized.

Later, the two children became smarter. They communicated fully and each took what he needed. The child who liked to drink juice gave his orange peel to the other child, and then exchanged it for the pulp he needed.The two children separated the skin from the pulp, one took the pulp to drink the juice, and the other took the skin to bake a cake.The interests of both parties are maximized.

This is actually trade.If this happens between two countries, it is foreign trade.Foreign trade, also known as foreign trade or import and export trade, referred to as foreign trade, refers to the exchange of goods and services between one country (region) and another country (region).This trade consists of two parts, import and export.For the country (region) that imports goods or services, it is an import; for the country (region) that exports goods or services, it is an export.This began to arise and develop in slave society and feudal society, and developed more rapidly in capitalist society.Its nature and function are determined by different social systems.

Foreign trade not only connects countries with high commodity production development, but also brings countries and regions with low production development levels into the field of exchange through foreign trade, making currency as a general equivalent penetrate into their economic life, making The products of labor of these countries and peoples have increasingly the character of commodities and exchange value, and the law of value gradually dominates their production.As the national circulation of commodities developed into a universal, world-wide circulation of commodities, the function of gold and silver as world money increased.Gold and silver are used as a means of international payment, international settlement and international credit in addition to the general purchase means of currency.As gold and silver become world currencies, the possibility of forming the world price of commodities arises.The formation of world prices shows that the role of the law of value is extended to the world market, which establishes a foundation for the comparison of commodity production and exchange conditions in various countries, and promotes the development of world production and trade.Through foreign trade, participating in the international division of labor and saving social labor, not only can the resources of various countries be fully utilized.Moreover, it can ensure the smooth progress of social reproduction and accelerate the realization of social expanded reproduction.

1. Trade dependence

Trade dependence is also called foreign trade dependence rate and foreign trade coefficient.A country's dependence on trade is generally expressed by the proportion of the total value of foreign trade imports and exports in the gross national product or gross domestic product.That is: trade dependence = total foreign trade ÷ gross national product.A change in the proportion means a change in the status of foreign trade in the national economy.Trade dependence can also be expressed by the proportion of total trade in national income.Trade dependence = total trade ÷ total national income.Foreign trade dependence is divided into export dependence and import dependence.Export dependence = total exports ÷ gross national product; import dependence = total imports ÷ / gross national product.

2. Price competition
Price competition is a form of competition that relies on low prices to win sales, occupy the market, and defeat competitors.When the products produced by one country or enterprise are the same or have no difference from those produced by another country or enterprise in terms of performance, utility, style, decoration, service provided, reputation of the producer, advertising, etc., the country or enterprise can only Only by selling products at the price of its competitors can it attract customers and make its products have a market.In practice, this form of competition is rare, because tangible and intangible differences in products offset the effect of this competition to a certain extent.

3. Non-price competition

Non-price competition refers to a kind of competition in which products are sold in non-price forms such as tangible and intangible differences in products, sales services, advertising and other sales promotion methods, and participate in market competition, except for the price of the product or when the sales price remains unchanged. form.Due to the rapid development of social economy and the shortening of commodity life cycle, it is difficult to obtain excess profits only by price competition.At the same time, the improvement of productivity has brought about significant changes in the consumption structure.Therefore, non-price competition has become an important means to expand commodity sales.The main methods are: ① Adopt new technology, improve management level, improve product quality, performance, packaging and appearance, etc. ②Provide preferential after-sales service. ③Through advertisements, trademarks, sales promotion methods, etc. to cause psychological differences among the public, etc.Non-price competition is an important form of monopolistic competition.

The Relationship Between Exports and Imports: Trade Surplus and Deficit
(End of this chapter)