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Yuan set to climb against dollar

THE yuan is set to rise against a weak United States dollar and on China's expected early recovery in its economic growth, a central bank adviser said in remarks published yesterday.

The US Federal Reserve's announcement last week that it would buy US$300 billion in Treasury bonds in the next six months is aimed at shoring up money supply though it may not have an immediate effect, said Fan Gang, who sits on the People's Bank of China's monetary policy advisory committee.

If liquidity picks up, "the threat of inflation in the US will rise and the trend for the yuan to appreciate may not change," Fan was quoted by the China Securities Journal yesterday.

The Fed's stance to buy Treasuries triggered concern of a weaker greenback as it is expected to pump more money into the system and trim the value of the US currency. Some currencies, including the British pound, the euro and Australian dollar, rose against the greenback since the announcement last week while the yuan was flat against the US dollar.

Fan added that expectations of the Chinese economy to recover ahead of the other global economies was also providing room for the yuan to appreciate. China's economy is one that is still growing despite the "Great Recession," as the International Monetary Fund calls the first global economic slump since World War II.

China is very likely to achieve the target of an 8-percent growth in gross domestic product this year, Fan said. Premier Wen Jiabao said earlier this month that China will keep the yuan stable and will not bow to any external pressure.

The yuan has gained 21 percent against the greenback since July 2005 when China de-pegged the yuan from the US dollar. While the yuan's rise has stalled since the middle of 2008, it has lost 0.2 percent this year against the greenback. But a "drastic depreciation" in the euro and Asian currencies has in turn imposed a lot of pressure on Chinese exporters.


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