The difference between the real exchange rate and the real effective exchange rate

A country's nominal effective exchange rate is equal to the weighted average of the bilateral nominal exchange rate between its currency and the currencies of all partner countries.

If inflation is excluded for the purchasing power of currencies of various countries.

can be obtained from the real effective exchange rate. The real effective exchange rate not only takes into account the relative changes in all bilateral nominal exchange rates, but also excludes the effect of inflation on changes in the value of the currency itself, and can comprehensively reflect the external value and relative purchasing power of the national currency. At present, the common weighted average methods include two types: arithmetic weighted average and geometric weighted average.

When calculating the effective exchange rate, researchers often design the calculation method of the weighted average, the range of sample currencies and the weight of ** according to their own special purposes, and the results may be different.

The real exchange rate refers to the exchange rate after the nominal exchange rate is adjusted, and different adjustment methods correspond to different real exchange rate meanings.

The real effective exchange rate is the weighted average of the bilateral nominal exchange rates between a country's currency and all ** partner currencies, excluding the effect of inflation on the purchasing power of each country's currency.

The real exchange rate is a true reflection of the competitiveness of a country's goods in the international market. Expressed by formula:

Real exchange rate = nominal exchange rate Fiscal subsidies and tax breaks.

Real exchange rate = nominal exchange rate - inflation rate.

Definition of the actual exchange rate:

The first definition is the external real exchange rate;

The second definition is the internal real exchange rate;

The third definition of the real exchange rate is the nominal exchange rate plus or minus fiscal subsidies or tax deductions;

The fourth definition of the real exchange rate is the nominal exchange rate minus the inflation rate;

The fifth definition of the real exchange rate includes a comparison of labor productivity between the two countries.

Economic impact of the real exchange rate:

Revenue and expenditure impact

1) Changes in the real exchange rate will cause the relative rise and fall of import and export goods and services, affect the balance of goods and services, and thus affect the supply and demand of foreign exchange. However, the impact of real exchange rate changes on the conditions will offset the adjustment effect on the ** difference to a certain extent.

2) Changes in the real exchange rate will cause changes in capital outflows and inflows. Generally speaking, the rise in the real exchange rate has the effect of encouraging capital exports, expanding foreign investment, and curbing capital imports. The reverse is true.

Domestic impact

1) When the real exchange rate (direct pricing method, the same below) falls, imports will be encouraged and domestic prices will fall; It will also inhibit exports, turn a large number of commodities from export to domestic sales, increase the number of commodities in the domestic market, and thus lower domestic prices. When the real exchange rate rises, it has the opposite effect.

2) In general, a decline in the real exchange rate has the effect of reducing domestic production and national income, and increasing unemployment. A rise in the real exchange rate has the opposite effect.

International implications

Since the undervaluation of the exchange rate of the local currency is conducive to the expansion of exports, some developed countries often deliberately lower the exchange rate as a means of dumping commodities abroad and competing for the international market. The dumping of foreign exchange by one country will cause other countries to take retaliatory measures, such as war or currency war. As a result, the contradictions between the capitalist countries will inevitably deepen, leading to tensions in international relations, the prevalence of foreign exchange controls, and the destruction of the normal international economic order.

The real exchange rate is the exchange rate adjusted for the nominal exchange rate at the level of the two countries, i.e., ep* p (where e is the nominal exchange rate of the direct pricing method, i.e., the foreign currency ** expressed in the local currency, p * is the level of foreign goods expressed in the foreign currency, and p is the level of domestic goods expressed in the local currency). The real exchange rate reflects the relative level of goods of the two countries expressed in the same currency, and thus reflects the international competitiveness of the goods of the two countries.

An exchange rate is the ** of one currency or the ratio of one currency to another. The reason why a country needs a foreign currency is that both currencies have purchasing power in the issuing country. Therefore, the essence of the exchange rate is the ratio of the purchasing power of the two currencies.

The exchange rate sounds fantastic, but like all markets, it starts with ** and sell. Due to the division of economic regions, the currencies of countries in the world are also different, but this division does not completely block the flow of goods and people, so the demand for currency transactions also arises with the flow of goods and people.

An exchange rate is the currency of one country expressed in the currency of another country**. It is made in the forex market by buyers and sellers. People who care about the renminbi exchange rate don't necessarily understand the logic behind it, but they often see words like foreign exchange reserves, current account, capital and financial account, foreign direct investment, etc.

The exchange rate is a kind of exchange, and the main role of the exchange rate is resource allocation. If the RMB exchange rate is too high, then many enterprises that rely on low exchange rates for exports will have no way to operate and can only turn to domestic sales, which is not good for exports. Foreign investors also do not like the high exchange rate of the renminbi, which will significantly reduce the inflow of foreign direct investment into China.

In short, China simply cannot accumulate that much foreign exchange reserves due to its high exchange rate.

The reason for the difference in the level of exchange rates is affected by the balance of payments. To put it simply, the so-called balance of payments is the import and export of goods and services, and the import and export of capital. In the balance of payments, if exports exceed imports and capital flows into the country, the demand for money in the international market increases, and the local currency rises.

Conversely, if imports are greater than exports, capital flows out, the demand for the country's currency in the international market decreases, and the local currency depreciates. 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 purchasing power parity of a currency refers to the exchange rate of a currency.

A country's high price level and high inflation rate indicate a decrease in the purchasing power of the local currency, which will contribute to the depreciation of the local currency. Otherwise, it tends to appreciate in value.

Some scholars believe that the impact of interest rates on exchange rates is mainly achieved through the impact of arbitrage capital flows. Moderate inflation and higher interest rates attract foreign capital inflows, dampen domestic demand, reduce imports, and increase the value of the local currency. In the case of severe inflation, the interest rate is always negatively correlated with the exchange rate.

This factor of people's psychological expectation is particularly prominent in the current international financial market. Exchange rate psychology believes that the exchange rate is the concentrated embodiment of the subjective psychological evaluation of currency by both the supply and demand sides of foreign exchange. High evaluation, strong confidence, currency appreciation.

Chinese theories play a crucial role in explaining numerous short-term or very short-term exchange rate fluctuations. In addition, factors influencing exchange rate fluctuations include monetary and exchange rate policies, the impact of unexpected events, the impact of international speculation, the release of economic data, and even the impact of market openings and closings.

The essence of an exchange rate is the conversion of banknotes from different countries. Because each country's banknotes are different, the way in the international is also different, the development of each country is different, and the economic benefits are also different, so there will be such a difference in level.

The essence is to exchange one currency for another, and then there will be a ratio; Affected by national policies, it will also be affected by the market economy, and it is related to military strength, economic strength, and economic development speed.

The essence is conversion, under the regulation of a certain profit, different currencies are replaced to achieve currency circulation, and the reason for the difference is that each country's development ability is different, and its international influence is different.

The essence of the exchange rate is the proof and duration of the economic strength of each country, and the reason for the difference in the level of the exchange rate is the operation of personnel and the ability of the bank to conduct external business.

The specific formula for calculating the real exchange rate of RMB is as follows:

Reer (er cpi*) CPI (1) The formula for calculating the real effective exchange rate index.

In March 2018, according to the People's Bank of China, the amount of broad money in the renminbi (m2) reached one trillion yuan. According to the exchange rate of the US dollar against the RMB in the current month (converted, the amount of RMB broad money ** (m2) is trillion US dollars!

United States: GDP = trillion dollars.

m2 = trillion dollars.

M2 per trillion GDP: , that is, trillion dollars.

By U.S. standards, China should issue M2:

trillion dollars. The actual issuance of trillions of yuan, if equivalent to trillions of dollars, is:

That is, 1 US dollar = Chinese yuan (what should this be......When I was a child, when I was writing, I looked at the bright red cloth towel on my chest, and my heart suddenly became motivated; Now, looking at the banknote printing numbers in front of my mother, I suddenly feel more motivated! ......

The real exchange rate refers to the exchange rate obtained by adjusting the real exchange rate through the relative price index, which is adjusted according to the ratio of the foreign price index to the domestic price index, and is used to reflect the actual impact of exchange rate changes on the international competitiveness of the two countries after excluding the impact of changes in the relative purchasing power of the currencies of the two countries.

The real exchange rate is the nominal exchange rate multiplied by the price index of a foreign country and divided by the price index of the home country.

There are three differences between the nominal and real exchange rates

1. The essence of the two is different:

1. The essence of the nominal exchange rate: refers to the exchange rate calculated without the adjustment of the price index.

2. The essence of the real exchange rate: refers to the exchange rate after the adjustment of the nominal exchange rate, and different adjustment methods correspond to different meanings of the real exchange rate.

Second, the role of the two is different:

1. The role of the nominal exchange rate: the change of the nominal exchange rate has a very short-lived impact on the relative value of commodities, because no matter how the exchange rate changes, enterprises can always achieve market equilibrium by adjusting wages and goods.

2. The role of the real exchange rate: it reflects the relative level of the goods of the two countries expressed in the same currency, thus reflecting the international competitiveness of the domestic goods.

3. The calculations of the two are different:

1. Calculation of the nominal exchange rate: nominal exchange rate = real exchange rate + inflation rate.

2. Calculation of the real exchange rate: real exchange rate = nominal exchange rate, financial subsidies and tax exemptions.

The real exchange rate is determined by the supply and demand of the currencies of the two countries (in the foreign exchange market), and the currencies of the two countries can be regarded as two commodities, and their relative ** is determined by their respective supply and demand, which has nothing to do with the prices of the two countries, but is determined by the supply and demand in the foreign exchange market, and measures the international competitiveness of a country's commodities (because it is determined by supply and demand).

The nominal exchange rate is obtained on the basis of the real exchange rate after considering the respective inflation of the two countries, which is expressed by the formula: nominal exchange rate = real exchange rate * inflation ratio, that is, on the basis of the real exchange rate and then considering the impact of inflation, the purchasing power level of a country's currency is measured (because the price of goods is considered).

It's written backwards, it's still reliable to read.