What is the impact of international inflation on exchange rate prices?

The real interest rate is the inflation rate minus the current interest rate, so when the inflation rate is high**, the method of raising the interest rate will generally be used to offset it, otherwise the money in the bank will shrink. When the interest rate is high, the exchange rate will rise, because the capital of other countries will flow in and enjoy high interest rates, then the national currency will become more and more valuable, resulting in an increase in the exchange rate.

In the case of the same exchange rate, if a country has inflation, it will cause the country's balance of payments to have a deficit, from the practice of China's economic development, the years of rapid economic growth are the years of deficit or surplus is small.

Therefore, on the issue of foreign affairs, we should completely change our concepts, abandon the traditional concepts and practices of earning foreign exchange through exports and pursuing surpluses, and establish a policy with the goal of balancing the balance of payments.

If a country often has a deficit, in order to pay the import debt, it must sell its own currency in the market to buy other countries' currency to pay the debts of the exporting country, so that the national income will flow out of the country, weakening the country's economic performance.

In order to improve this situation, it is necessary to devalue the country's currency, because the decline in the value of the currency, that is, the reduction of export commodities in disguise, can improve the competitiveness of export products. Therefore, when the country's foreign trade deficit widens, it will weaken the country's currency, making the country's currency**; Conversely, when there is a foreign trade surplus, it is good for the currency.

Therefore, the international ** situation is a very important factor affecting the foreign exchange rate. The friction between Japan and the United States amply illustrates this point. The United States has been running a deficit with Japan for many years, resulting in a deterioration in the US balance of payments.

In order to limit Japan's surplus with the United States**, the United States** exerted pressure on Japan to force the yen to appreciate. Japan**, on the other hand, is doing everything possible to prevent the yen from appreciating too quickly in order to maintain a more favorable situation. Similarly, there is an element of struggle on the issue of the renminbi's appreciation.

Under the fixed exchange rate, when there is a deficit in foreign trade, foreign capital will flow into the country.

In addition, underground channels can allow foreign capital to flow into the country.

The relative abundance of money also contributes to inflation.

Summary. Hello, according to the problem you described, when a country has a serious inflation policy, the impact on the country's exchange rate is as follows: when a country has a serious inflation policy, the value of the country's currency will fall, making the country's goods ****, which will lead to a decrease in the competitiveness of the country's goods, so there will be a negative impact on the country's exchange rate.

In addition, as the value of the country's currency falls, foreign investors withdraw their funds from the country, reducing the country's foreign exchange reserves, resulting in the country's exchange rate**. Therefore, a severe inflation policy may lead to the depreciation of the country's exchange rate. <>

When a country has a severe inflation policy, what is the impact on the country's exchange rate?

Hello, according to the problem you described, when a country has a serious inflationary policy, the impact on the country's exchange rate is as follows: when a country has a serious inflationary policy, the value of the country's currency will fall, making the country's goods ****, which will lead to a decrease in the competitiveness of the country's goods, so it will have a negative impact on the country's exchange rate. In addition, as the value of the country's currency falls, foreign investors will withdraw their funds from the country, reducing the country's foreign exchange reserves, which will lead to a decline in the country's exchange rate.

Therefore, a severe inflation policy may lead to a depreciation of the country's exchange rate. <>

Hello, the teacher will make a specific addition to your question, a country's inflation rate is higher than its main partner's inflation rate, which will lead to the depreciation of its currency exchange rate. Because inflation reduces the purchasing power of the country's currency, reduces the demand of foreign buyers to buy the country's currency, and at the same time increases the ** of exports and decreases the ** of imports, resulting in an increase in exports and a decrease in imports, which reduces the demand for foreign exchange, which leads to the depreciation of the national currency. In addition, since inflation reduces the country's real interest rate, it reduces the demand for the country's currency by foreign investors, which in turn leads to the depreciation of the national currency.

Therefore, inflation is an important factor affecting the exchange rate. <>

The question is too complicated. Actually, anything can happen.

No effect: Inflation has no effect on foreign exchange rates in closed or heavily regulated economies. For example, China now has a significant inflation problem, but because China regulates the exchange rate, the foreign exchange market is not affected by the domestic situation of the local currency.

China's foreign exchange level is completely controlled by the state through market trading.

Currency depreciation (falling exchange rate): This is something that many economists have come up with. In a fully open economy, inflation means that the local currency depreciates, and when the local currency depreciates, the exchange rate naturally falls.

This is a problem for many small and medium-sized open economies. Once inflation is severe in the country, the foreign exchange rate will also decrease.

Currency appreciation (exchange rate appreciation): This is a strange situation. But it was true that between 2000 and 2012 it took place in the world's largest and main currency - the US dollar.

Although the United States is an open market economy, because the US dollar is also the world's main circulating currency, a large number of commodities and financial products are denominated in the US dollar. Therefore, when the Fed over-issues money, the liquidity of the dollar increases, and the value of the dollar increases, and the currency appreciates. Of course, this anomaly disappeared in the later stages of the financial crisis, after the US QE3.

One theory is that the effect of currency depreciation brought about by the over-issuance of the US dollar eventually exceeds the effect of the enhanced liquidity of the US dollar. Therefore, after 2012, every QE in the United States will cause the depreciation of the dollar.

More money will lead to inflation, and the result is that the local currency will depreciate against foreign currencies, as in the current US dollar, because the reduction in QE is 10 billion and other reasons, and all foreign currencies will appreciate, including RMB.

Under the direct pricing method, inflation is the decrease in the purchasing power of the local currency, and according to the purchasing power parity theory, the ratio (exchange rate) of the two currencies is determined by the purchasing power of each country in the issuing country, so inflation, the local currency depreciates and the foreign exchange rate rises.

In general, inflation causes the country's currency to exchange rate**, and the easing of inflation can increase the exchange rate. Inflation affects the value and purchasing power of the local currency, which will lead to a weakening of the competitiveness of export commodities and an increase in imported goods, and will also have a psychological impact on the foreign exchange market and weaken the credit status of the local currency in the international market. All three of these effects can lead to a depreciation of the local currency;

The difference between the price level and the inflation level, under the paper money system, the exchange rate is fundamentally determined by the real value represented by the currency. According to the purchasing power evaluation, the ratio of the purchasing power of a currency is the currency exchange rate. If a country's price level is high and inflation is high, it means that the purchasing power of the local currency has decreased, which will lead to the depreciation of the local currency.

Otherwise, it tends to appreciate.

In the short term, when inflation occurs, when the domestic market rises and the exchange rate does not fluctuate, the export of goods will also increase (otherwise domestic manufacturers will choose to change export goods to domestic sales), then exports will be suppressed; However, there has been no significant change in the number of imported goods, and the demand for imported goods is greater relative to the demand for imported goods, resulting in an increase in imports.

But in the long run, inflation will lead to currency exchange rates**, leading to higher exports and lower imports, offsetting the short-term effects.

Since prices are a monetary representation of the value of a country's goods, inflation means that the amount of value represented by the country's currency decreases. In the case of the close interconnection of domestic and foreign commodity markets, in general, inflation and domestic prices** can cause a decrease in exports and an increase in imports, which will have an impact on supply and demand in the foreign exchange market, causing fluctuations in the country's exchange rate. At the same time, the decline in the internal value of a country's currency will inevitably affect its external value, weaken the credibility of the country's currency in the international market, and people will expect the exchange rate of the country's currency to weaken due to inflation, and convert their holdings of the country's currency into other currencies, resulting in the exchange rate**.

The difference between domestic and foreign inflation rates is the dominant factor in determining the long-term trend of the exchange rate, and the ratio between the two currencies is determined by the value they represent under the condition of non-cash credit money. If a country's inflation is higher than that of other countries, that country's currency tends to depreciate in the foreign exchange market; Otherwise, it will tend to appreciate.

Third, the level of inflation. The level of inflation is the basis for influencing the change in the exchange rate. Inflation occurs when a country issues too much money and the amount of money in circulation exceeds the actual demand for goods in circulation.

Inflation causes a country's currency to decline in its domestic purchasing power and depreciates its currency within the currency pair, and under the condition that other conditions remain unchanged, the internal depreciation of the currency pair will inevitably lead to external depreciation. Because the exchange rate is a comparison of the value of two currencies, a country that issues too much currency has less value per unit of currency, so when the country's currency is converted into a foreign currency, it has to pay more than the original currency.

Changes in the inflation rate will change people's expectations of the amount of money they need to trade, as well as their expectations for bond yields and the value of foreign currencies. Inflation causes domestic prices**, and under the condition that the exchange rate remains unchanged, exports lose money and imports are favorable. In the foreign exchange market, the demand for foreign currencies increases, and the domestic currency needs to decrease, which causes the foreign exchange rate to rise and the domestic currency to depreciate externally.

Conversely, if a country's inflation rate decreases, the foreign exchange rate will generally be**.