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Yuan at record high against the dollar
By Feng Jianmin |
September 27, 2011, Tuesday
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Print Edition
Print Edition
THE yuan hit a new record high yesterday after the central bank said it favored a more flexible exchange rate and would push for greater convertibility of the Chinese currency.
The People's Bank of China set the central parity rate at 6.3735 against the US dollar, down from Friday's 6.384. It is the strongest since yuan was allowed to be traded in 1994.
"China's currency policy will not be affected by a global economic slowdown and the yuan is highly relevant to China's international balance of payments," said Zhou Xiaochuan, governor of the central bank, at meetings of the IMF's International Monetary and Financial Committee in Washington at the weekend.
Li Daokui, an adviser to the central bank, reiterated that the yuan may be fully convertible in five years at a forum during the meetings.
The appreciation negated earlier speculation that China would resume the yuan's peg to the dollar amid an uncertain global economic outlook, analysts said.
"The government has not changed its stance on gradual appreciation of the yuan," said Li Wei, an economist with Standard Chartered Bank. "A peg to the US dollar will add to the political pressure facing China and will do nothing good to the country's economic reform."
In 2005, China introduced a floating exchange rate regime under which the yuan would be managed in relation to a basket of currencies. But China halted a three-year, 21 percent advance in the yuan in July 2008 to help exporters.
The peg was ended last June when the world's economic situation picked up and when China pledged to change its economic structure from one that relied on labour-intense export-oriented industries to one sustained by technology and consumption.
"If the peg is to be resumed, all the efforts that the country has made to improve its economic structure will end in vain," Li said.
"Besides, the government must have realized that the global economy is more dependent on the performance of emerging countries, including China. A stronger yuan will do good to the world."
Economists widely believe that the yuan will climb to 6.3 against the dollar by the end of the year.
However, analysts also warned that the yuan is still under pressure in the short term.
"Investors are extremely risk averse after the disappointments of the US Federal Reserve's unclear attitude for printing money alongside an escalating sovereign debt crisis in Europe, which will hurt China's exports," the DBS Bank said in a report.
"The market conditions will continue to be volatile between now and the G20 summit on November 4, when the eurozone is expected to deliver a plan to contain its crisis."
The yuan weakened 0.09 percent against the dollar last week, and fell 0.18 percent to 6.4006 yesterday during over-the-counter trading, the weakest since August 12.
The yuan is allowed to be traded at 0.5 percent on each side of the central parity rate.
"In a longer-term perspective, this does not necessarily indicate that the market is bearish on the yuan," the DBS Bank said. "The yuan's growing appeal to foreign governments as an alternative reserve currency also underscores China's relative robust economic performance."
The People's Bank of China set the central parity rate at 6.3735 against the US dollar, down from Friday's 6.384. It is the strongest since yuan was allowed to be traded in 1994.
"China's currency policy will not be affected by a global economic slowdown and the yuan is highly relevant to China's international balance of payments," said Zhou Xiaochuan, governor of the central bank, at meetings of the IMF's International Monetary and Financial Committee in Washington at the weekend.
Li Daokui, an adviser to the central bank, reiterated that the yuan may be fully convertible in five years at a forum during the meetings.
The appreciation negated earlier speculation that China would resume the yuan's peg to the dollar amid an uncertain global economic outlook, analysts said.
"The government has not changed its stance on gradual appreciation of the yuan," said Li Wei, an economist with Standard Chartered Bank. "A peg to the US dollar will add to the political pressure facing China and will do nothing good to the country's economic reform."
In 2005, China introduced a floating exchange rate regime under which the yuan would be managed in relation to a basket of currencies. But China halted a three-year, 21 percent advance in the yuan in July 2008 to help exporters.
The peg was ended last June when the world's economic situation picked up and when China pledged to change its economic structure from one that relied on labour-intense export-oriented industries to one sustained by technology and consumption.
"If the peg is to be resumed, all the efforts that the country has made to improve its economic structure will end in vain," Li said.
"Besides, the government must have realized that the global economy is more dependent on the performance of emerging countries, including China. A stronger yuan will do good to the world."
Economists widely believe that the yuan will climb to 6.3 against the dollar by the end of the year.
However, analysts also warned that the yuan is still under pressure in the short term.
"Investors are extremely risk averse after the disappointments of the US Federal Reserve's unclear attitude for printing money alongside an escalating sovereign debt crisis in Europe, which will hurt China's exports," the DBS Bank said in a report.
"The market conditions will continue to be volatile between now and the G20 summit on November 4, when the eurozone is expected to deliver a plan to contain its crisis."
The yuan weakened 0.09 percent against the dollar last week, and fell 0.18 percent to 6.4006 yesterday during over-the-counter trading, the weakest since August 12.
The yuan is allowed to be traded at 0.5 percent on each side of the central parity rate.
"In a longer-term perspective, this does not necessarily indicate that the market is bearish on the yuan," the DBS Bank said. "The yuan's growing appeal to foreign governments as an alternative reserve currency also underscores China's relative robust economic performance."
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