The theory that RMB appreciation can curb inflation is sometimes difficult to verify in practice.

We learned from textbooks that RMB appreciation can effectively suppress inflation, which is mainly based on the deflationary effect of local currency appreciation. Generally speaking, the appreciation of the RMB can lead to a decrease in the price of imported goods (especially a decrease in the price of international raw materials), lowering the domestic price level; at the same time, the price of domestic products has increased relative to the price of similar foreign products, resulting in a decrease in exports and a decrease in domestic export demand. It can lower domestic price levels; increase imported goods, reduce exported goods, reduce trade surplus, and reduce the pressure on foreign exchange. As mentioned in the book, RMB appreciation plays a very important role in easing domestic inflationary pressure.

But the actual situation is that it is difficult to completely replace domestic and foreign products. The role of RMB appreciation will not only not reduce domestic inflationary pressure, but will have the effect of boosting price increases. , because there are two major prerequisites for solving domestic inflation through RMB appreciation: First, imported products must have a strong substitution effect with domestic products whose prices have increased significantly; second, the price reduction of imported products caused by appreciation must be greater than The price increase of similar domestic products. In the commodity import trade, there are resource product import monopolies (such as Sinopec and PetroChina monopolizing oil imports) and consumer goods tax controls, which will increase the price of imported goods in disguise. Even if the value rises, the domestic price level may not drop much. On the contrary, the expectation of continued appreciation of the RMB has triggered a large inflow of international capital, increased foreign exchange holdings, and triggered a large amount of base currency, which will increase the pressure for rising prices. Take Friedman's classic saying: Inflation is a monetary phenomenon anyway.

So the theory that RMB appreciation can curb inflation is sometimes difficult to verify in practice. China’s cheap labor costs make finished products low in price, and there is strong demand in the international market (foreigners) Also love to be cheap), unless we increase imports, it will be difficult to effectively reduce the trade surplus. In addition, the production plans of many enterprises are formulated in advance and are difficult to change in the short term. The export model is also rigid and will not be adjusted in time due to changes in the exchange rate, so the impact on the decline in exports is not significant.

Since the exchange reform in July 2005 to the end of 2010, the RMB exchange rate against the US dollar has appreciated by 25% cumulatively, and the RMB exchange rate against the euro has appreciated by 14% cumulatively. In the past six years or so, the trend of "domestic depreciation and external appreciation" of the RMB has further intensified, and we still felt the pressure of two obvious price increases. The appreciation of the RMB not only failed to have a "lowering" effect in suppressing domestic inflation, but The increase in appreciation expectations has also stimulated a large inflow of international capital, which has led to an increase in foreign exchange holdings and triggered a large amount of base currency, which in turn has increased the pressure for rising prices. Although the benefits of RMB appreciation in mitigating the pressure of imported inflation have been largely offset by the imposition of taxes on some state-owned enterprises with import rights and consumer goods.

As experts say, a 10% appreciation of the RMB will not only fail to alleviate domestic inflationary pressure, but will also erode the profits of some small and medium-sized processing trade companies that rely heavily on exports, because in the field of foreign trade , more than 50% of processing trade enterprises have very thin profits, and their transactions are mostly settled in US dollars. A sharp appreciation of the RMB may have an impact on the affordability of enterprises and the employment of employees.

From the perspective of optimizing the industrial structure, moderate appreciation of the RMB is necessary, but the exchange rate cannot rise too fast. Instead, it fluctuates in both directions, rising and falling. This can reduce the inflow of international capital due to expectations of appreciation. China's speed can alleviate domestic inflation pressure to a certain extent. As Governor Zhou Xiaochuan said: Exchange rate is not the main tool to truly manage inflation. To solve domestic inflationary pressure, we must base on the comprehensive application of fiscal policy and monetary policy, and use monetary policy tools such as interest rates, deposit reserve ratios, and open market operations to regulate prices. We should keep the RMB exchange rate at a reasonable and balanced level, and must not sacrifice the least for the sake of curbing inflation, disrupting the direction and steps of exchange rate reform.