Research on Equilibrium Exchange Rate of RMB - Tendency Prediction and Empirical Test between Exchange Rate and Trade Balance

This paper studies the equilibrium exchange rate of RMB. According to the ERER theory, using data from China Statistical Yearbook, China Balance of Payments Statistics, Bank for International Settlements, National Bureau of Statistics, General Administration of Customs and Wind database, this paper considers tariffs, trade barriers, government fiscal policies, and capital flows between countries as well as analyzes the balance of the trading market. The results show that the actual effective exchange rate of the common name currency fluctuates slightly around the equilibrium exchange rate. The main contributor to China's trade surplus is domestic and foreign income instead of the RMB exchange rate. In addition, this article predicts that China's technological progress will have a significant impact on the RMB equilibrium exchange rate. Since China is a developing country, the continuous improvement of technological level has stimulated the appreciation of the renminbi. At the same time, technological progress in the United States has a devaluation effect on the renminbi. This will lead to an increase in the number of high-tech products exported by the United States to China and an increase in the demand for the U.S. dollar in the Chinese foreign exchange market, leading to the appreciation of the U.S. dollar and the relative depreciation of the renminbi.