For some time, various remarks have been bruited concerning appreciation of the Chinese currency Renminbi (RMB). Some international interest groups, with an eye to their own benefits, imposed upward pressure on the RMB and even politicized this economic issue. A short time ago, Governor of the People’s Bank of China Zhou Xiaochuan stated that the exchange rate of the RMB would not be reevaluated and that the rate would remain stable.
　　The current exchange rate of the RMB, based on market supply and demand, follows a unitary floating exchange rate system that is subject to management.
　　Analyzing economic effect of exchange rate fluctuation is an important research subject of international economics and macro economics.
　　Because of the explosion of Southeast Asian financial crisis and accelerating economic growth in China under the background of international unbalance, the trade surplus and foreign exchange reserve had been increasing since our exchange reform in 1994, which exerted depreciation and appreciation pressure on RMB. Finally, we carried out exchange rate reform again in July 2005 for a manageable floating exchange rate mechanism, referring to currency basket and based on market supply and demand. RMB exchange rate is in persistent increase since 2005. Exchange rate is an important synthetic index for a country participating in international economic activity, for exchange rate fluctuation will directly influence the trade balance, relating industry development and macro economic growth. The political circles and academia all pay great attention to these problems. This paper will consider problems from former researches on model establishment and method option based on realistic economic development in China. Meanwhile, it will make theoretical and demonstration analyze from local equilibrium and general equilibrium to evaluate operating mechanism and internal relation of RMB exchange rate, international trade and economic growth. In the first part, this paper reviews historical evolvement of RMB nominal exchange rate mechanism. Compared with nominal exchange rate, real efficient exchange rate is better in reflecting the competitiveness of economic growth and trade commodity when a country trade with its trade partners. As a result, there are many examples in former researches using real efficient exchange rate variable. This paper will provide a reference review of the real efficient exchange rate estimation of RMB, summarize relating researches on the effect of exchange rate change to international trade and economic growth. It introduces the theoretical method, data selection and model construction of relating researches. By referring to 15 trade partner countries or regions that account for 80 percent of Chinese foreign trade, it constructs trade weight based on bilateral nominal and real efficient exchange rate and price index of our country and those trade partner countries and regions. It shows that the change trend of real efficient exchange rate is smoother than nominal efficient one considering with commodity price of our country and trade partners. There are four fluctuations since the reform and opening policy. GARCH model is brought to estimate vibration rate of RMB real efficient exchange rate index, and finds that there is ARCH effect—centralized fluctuation in its fluctuation, which accord to the change of basic financial commodity price. From the change trend of vibration rate, we find that the fluctuation of RMB real efficient exchange rate is gradually smoothing. This paper establishes VAR model and simultaneous equations based on local equilibrium and general equilibrium, taking account of RMB real efficient exchange rate and its fluctuation. In local equilibrium part, it constructs export, import and balance of trade VAR model of exchange rate and its fluctuation effects. Analyzing by unit root tests on time series and Co-integration technology, results indicate that there is long-term Co-integration relation between our export, import and balance of trade and real efficient exchange rate and its fluctuation and domestic and overseas economic growth. The RMB real efficient exchange rate fluctuation adversely affects export and import, and exerts more influence on export. Domestic and overseas economic growth increase trade balance variable—export volume divides import volume. Using a generalize impulse function method and correlation analysis which are independent on variable sequence of VAR system, we find that although in the short-term, the RMB real efficient exchange rate is unfavorable to balance of trade and exchange rate fluctuation is beneficial, in the long-term, the influence is ambiguous and the exchange rate fluctuation's effect is negative. This conclusion is confirmed by regional panel data of our country. Concerning with the internal relation among RMB real efficient exchange rate, international trade and economic growth, this paper introduce endogenous simultaneous equations and generalized method of moments. Results indicate that there is convergent trend in our economic growth, but this trend moves with the implementation of reform and opening policy. Investigation rate and balance of trade are obvious benefit to our economic growth. From determinant factors of exchange rate, because of Balassa-Samuelson effects and its dependency on capital, domestic economic growth improves real efficient exchange rate appreciation, and investigate rate and overseas economic growth exerts negative effect which will be decreased as time goes by. Following general analyzing method, this paper establishes dynamic general computable equilibrium model—MCHUGE, which details foreign and overseas capital, constructs a new closure to investigate the effect of RMB exchange rate appreciation to Chinese trade development and economic growth. In foreign trade aspects, RMB appreciation will decrease export and increase import, and expand trade deficit. But the influence on export will be different across the long-term and short-term. From overseas capital aspect, RMB appreciation will reduce our foreign exchange reserve, increase direct investment to foreign countries and overseas investment. From macro effect aspect, RMB appreciation will improve the output of agricultural, mining, public service, construction, and service industry, but unfavorable to manufacture industry at the beginning. Finally the increase of employment and capital will expand GDP. The last part will present main research conclusion.