Core Viewpoint - The article discusses the divergence between the traditional neoclassical exchange rate models and the realities of modern financial systems, emphasizing the need to consider financial factors alongside real economic indicators when assessing exchange rates [2][3][6]. Exchange Rate Framework - The neoclassical framework emphasizes real economic factors while downplaying the impact of financial factors on exchange rates, which may lead to significant misjudgments in exchange rate assessments [3][6]. - In contrast, post-Keynesian economics posits that capital flows and expectations are the core mechanisms driving exchange rate fluctuations, especially in a highly financialized economy [3][6][15]. Types of Exchange Rates - There are three main forms of exchange rates: bilateral exchange rates (especially against the US dollar), nominal effective exchange rates, and real effective exchange rates, with the latter being crucial for analyzing the impact on trade [5][6]. Factors Influencing Exchange Rates - Estimating the so-called "equilibrium value" of exchange rates is complex due to the multitude of bilateral and multilateral factors involved, with traditional models often failing to account for the significant role of capital flows [6][12]. - The post-Keynesian perspective argues that capital flows dominate exchange rate determination, as evidenced by the vast scale of foreign exchange market transactions compared to international trade [14][15]. Historical Context and Examples - Historical instances, such as the volatility of the US dollar post-Bretton Woods and the Asian financial crisis, illustrate the inadequacies of neoclassical models in explaining exchange rate movements [16]. - The article highlights the phenomenon of the Chinese yuan's "internal depreciation and external appreciation" post-2005, which aligns more closely with post-Keynesian theories than with neoclassical assumptions [17][18]. Recent Developments - Recent data indicates that despite improvements in China's manufacturing competitiveness, the real effective exchange rate of the yuan has depreciated by 16% from January 2022 to October 2025, contradicting neoclassical predictions [18].