Weaker dollar sparks a warning
May 10, 2011, Tuesday
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Print Edition
Print Edition
THE appreciation of the yuan against the US dollar has mainly occurred because of a weaker dollar, experts say, warning that an influx of "hot money" could follow.
The value of China's yuan hit a new high against the dollar yesterday as the central bank fixed the central parity rate at 6.4988 yuan per dollar.
The symbolic 6.50 ratio was broken on April 29, when the central bank set the rate at 6.4990 yuan. The yuan exchange rate has gained by almost 1.9 percent against the dollar since the start of the year.
It has also risen by nearly 5 percent against the greenback since June 19 last year, when the central bank pledged that it would make its exchange rate formation mechanism more flexible.
"The US dollar is weakening. That's the main factor behind the accelerated appreciation of yuan," said Su Guojian, research and managing director of China Construction Bank International.
Last month, the US Federal Reserve decided to keep its low interest rate unchanged for an extended period. It said it would continue its US$600 billion bond-buying program through June.
The reserve's decision weakened the value of dollar, with the currency plunging to its lowest level since July 2008.
The greenback is losing its attraction and might fall into crisis if the Federal Reserve maintains its loose monetary policy, said Zhou Shihong, director of the China Finance Research Institute.
"The US is moving toward a weaker dollar, and a stronger yuan will help reduce their debt, as any change in the dollar's exchange rate will affect their debt," said Song Guoyou, a professor at Shanghai's Fudan University.
The US government's quantitative easing policy has caused excessive liquidity in the global market, which has encouraged other nations to demand stable exchange rates, said Chen Ye, a senior researcher with the Beijing-based Anbound Group. Therefore, China has good reasons to maintain its current monetary policies, Chen said.
Zuo Xiaolei, chief economist with China Galaxy Securities, said the fast appreciation of yuan can lower import prices, but will increase market expectations for stable and risk-free appreciation. This may spur an influx of international capital and offset the government's efforts to drain excessive money.
The value of China's yuan hit a new high against the dollar yesterday as the central bank fixed the central parity rate at 6.4988 yuan per dollar.
The symbolic 6.50 ratio was broken on April 29, when the central bank set the rate at 6.4990 yuan. The yuan exchange rate has gained by almost 1.9 percent against the dollar since the start of the year.
It has also risen by nearly 5 percent against the greenback since June 19 last year, when the central bank pledged that it would make its exchange rate formation mechanism more flexible.
"The US dollar is weakening. That's the main factor behind the accelerated appreciation of yuan," said Su Guojian, research and managing director of China Construction Bank International.
Last month, the US Federal Reserve decided to keep its low interest rate unchanged for an extended period. It said it would continue its US$600 billion bond-buying program through June.
The reserve's decision weakened the value of dollar, with the currency plunging to its lowest level since July 2008.
The greenback is losing its attraction and might fall into crisis if the Federal Reserve maintains its loose monetary policy, said Zhou Shihong, director of the China Finance Research Institute.
"The US is moving toward a weaker dollar, and a stronger yuan will help reduce their debt, as any change in the dollar's exchange rate will affect their debt," said Song Guoyou, a professor at Shanghai's Fudan University.
The US government's quantitative easing policy has caused excessive liquidity in the global market, which has encouraged other nations to demand stable exchange rates, said Chen Ye, a senior researcher with the Beijing-based Anbound Group. Therefore, China has good reasons to maintain its current monetary policies, Chen said.
Zuo Xiaolei, chief economist with China Galaxy Securities, said the fast appreciation of yuan can lower import prices, but will increase market expectations for stable and risk-free appreciation. This may spur an influx of international capital and offset the government's efforts to drain excessive money.
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