What Is an Exchange Rate Mechanism?

The exchange rate mechanism (Exchange Rate Mechanism, often referred to as ERM) refers to the connection and interaction of exchange rate fluctuations in foreign exchange market transactions and changes in foreign exchange supply and demand. It is one of the automatic adjustment mechanisms for the imbalance of balance of payments. The logical process of the exchange rate mechanism to adjust the balance of payments under the floating exchange rate system can be simply expressed as: the balance of payments deficit (surplus) devaluation of the domestic currency (value appreciation) rising foreign exchange rates ( (Decline) imports decrease (increase) exports increase (decrease) balance of payments deficit decreases (decreased surplus) until equilibrium is restored.

Exchange rate mechanism

The exchange rate mechanism is a very important issue in a country's economic development. It is also an important means for a country to implement economic regulation. It reflects the currency of the country.

European Exchange Rate Mechanism (ERM II) The European Exchange Rate Mechanism was established in 1979 to limit exchange rate fluctuations in the currencies of EU member states. ERM sets a fixed exchange rate for member currencies

Macro:

RMB implements floating exchange rate mechanism

Young scholar Liu Zhou discovered the exploitation contained in the current international exchange rate mechanism in the article "The Biggest Capital in the Capital Age". Revealing the secret of exploitation hidden in the international exchange rate mechanism. The article argues:

The current international exchange rate mechanism is an important part of the current unequal international economic and trade order. It is an exchange rate mechanism that is conducive to "a few countries exploiting the world."

For example, the exchange rate is 1 yuan per 7.5 yuan. An American owns $ 8,000, which is relatively common in the United States. However, this American took the 8,000 US dollars to China to exchange them for RMB 60,000. Under the conditions of extremely low prices in China and extremely high prices in the United States, the value of the goods purchased in China for 60,000 yuan is more than the value of the goods that can be purchased in the United States for $ 8,000. That is to say, this American came to China with this 8,000 US dollars, no production, no labor, no need to take any investment risk, this 8,000 US dollars has achieved double capital appreciation and doubled Capital profit. Where does this part of the added value come from? It is achieved by taking the blood and sweat of the Chinese people for free. This is the relationship between China and the United States, and so is the relationship between all the developing countries in the world and the western developed countries-that is, the prices of developing countries are low and the currency exchange rate is low. The prices of developed countries are high and the currency exchange rate is high. The difference is that the yen exchange rate is low but the prices in Japan are extremely high, so people in Europe and the United States feel very rich when they arrive in Japan. However, people in Europe and the United States feel very rich in developing countries such as China. On the one hand, the national currency they carry can be exchanged for double the currency of the destination country. On the other hand, the price of the destination country is lower than the price of the country. So they can only buy a match for the money in the developing country. You can buy a box of matches, or even more. This is the basic reality of this era). Therefore, the current international currency exchange rate mechanism is an extremely reactionary exchange rate mechanism. It is a very hidden tool for the developed countries to exploit the developing countries. The real foundation on which it can exist is the international power relationship. Its basic content is determined by the colonial predatory relationship in the colonial era and evolved gradually. Together with other parts of the unequal international economic and trade order, it has become a tool for the peaceful plunder of developing countries by developed countries, and this so-called peaceful plunder is a continuation of armed plunder in the colonial era. (The truly equal exchange rate mechanism should basically use the price index of each country as the main basic indicator. Because lower prices indicate that their currencies contain more physical quantities, their exchange rates should also be relatively high; while prices are higher It means that its currency contains less physical quantity, so its exchange rate should be relatively low. This is the most understandable reason).

The article also argues that capitalists in developed countries (especially capitalists of multinational consortia), on the surface, earn profits in the international market by relying on their own capital and management methods. But the vast majority of their profits are actually achieved mainly through unequal international trade mechanisms. We know that the existing unequal international trade mechanism is formed by history. It was the product of military conquest by colonial nations in history, and it is still maintained by force until now. Therefore, there is no doubt that when capitalists in developed countries make profits peacefully in the international market, they are essentially conducting a peaceful plunder; when they are conducting such a hypocritical peaceful plunder, The above is to carry out armed plunder in a completely new sense. In essence, it is participating in a bloody and dirty plunder war spanning the historical era. The capitalists are the beneficiaries and instructors of this dirty war. Their profits depend on the historical force of their respective countries, and also rely on the current force, so in the final analysis, they are making money by force, and they still make war money. Therefore, the biggest capital in the capital era is not capital but violence.