RMB: Depreciating Internationally while Appreciating Externally
发布: 2008-1-15 10:46 | 作者: BEI Duoguang（贝多广） an | 来源: China Economist
The Renmin University of China
RMB has been depreciating internally while appreciating externally since 2002. How can such a seemingly contradictory phenomenon be explained? What are the causes underlying this phenomenon? How can asset price hikes be understood when CPI is basically controlled? How can effective monetary policies be formulated within this new landscape? This article attempts to provide answers to these questions.
Introduction
In a credit currency system, the internal value of a country’s currency is its internal purchasing power measured in terms of the goods and labour purchased by a unit of currency. Therefore, a currency’s internal purchasing power is usually inversely related to the domestic price level of the country issuing the currency.
The external value of a currency is its exchange power usually measured in terms of exchange rate. The more foreign currency exchanged per unit of the domestic currency, the more valuable the domestic currency is,or vice versa. According to the classic law of one price,the value of a country’s currency should be in line with its external value after being exchanged at the prevailing exchange rate and excluding transport costs and other necessary transactional expenses. Shortterm exchange rate is dictated by supply and demand,although the foreign exchange market is influenced by a multitude of factors. In the long run, however,the value of a country’s currency is a manifestation of the country’s economic health and long-term growth...
