CHINA / National
Yuan appreciates to below 8 against greenback
By Sun Min (China Daily)
Updated: 2006-05-16 06:49
The Chinese currency Monday strengthened to below 8 against the US dollar
for the first time since last July's revaluation.
Shanghai-based China Foreign Exchange Trade System reported that the
daily benchmark, or the central parity rate for the US dollar, stood at
7.9982 yuan, falling below 8 yuan for the first time in 12 years.
A clerk at an foreign currency exchange desk at a hotel shows Chinese
yuan banknotes in Shanghai, China, in this July 22, 2005 file photo.
China's official exchange rate rose Monday, May 14, 2006 to 7.9982 yuan
per U.S. dollar, its highest level since a revaluation in July, the
government said. [AP]
The rate was 8.0082 on Friday.
The currency traded at a low of 7.9972 per US dollar Monday but ended at
8.003 at 5:30 pm, according to the system.
The United States welcomed the rise in China's currency.
"Greater flexibility in China's exchange rate is something we've long
advocated," US Treasury Department spokesman Tony Fratto said Monday in
response to the appreciation in China's currency.
Traders said the market movements show the renminbi exchange rate is more
flexible despite some international criticism that the currency should
further appreciate.
Finance expert Tan Yaling with Bank of China said the breaching of the
8-yuan barrier is "actually not a surprise. There were intense market
expectations (for the dollar-yuan exchange rate) to fall below 8," she
said.
"Although the central bank expects a stable exchange rate, the hopes (for
yuan appreciation) of overseas and domestic institutions are high."
She said China's robust economic growth, hefty bank lending and the
world's largest foreign exchange reserves combined to push the yuan
higher.
A State Administration of Foreign Exchange official said yesterday that
market forces should be given full play in determining the currency's
value.
A Standard Chartered prediction is that the yuan would rise to 7.8
against the dollar by the end of this year; and Wang Zhihao, an economist
at the bank, said he believes the yuan's value would stay on the upside
in the short run.
Han Fuling, a finance research fellow with Central University of Finance
and Economics, said he believes that the appreciation of the yuan would
attract more overseas funds to China's stock market.
In a statement published Monday, the People's Bank of China (PBOC), the
central bank, pledged that the country would further improve the renminbi
exchange rate regime.
It will try hard to bring down the trade surplus and achieve a trade
balance. The authorities will also expand channels for outbound capital
investment and gradually realize the full convertibility of the yuan
under the capital account.
China last July unexpectedly reformed its decade-old foreign exchange
rate mechanism, allowing the yuan to appreciate by 2 per cent against the
US dollar to 8.11 and pegging the yuan to a basket of currencies instead
of the greenback alone.
But it still faces international pressure to let its currency appreciate
further, given the mounting trade surplus with major countries like the
United States.
Some US lawmakers have been pushing for faster yuan gains to narrow their
country's trade deficit with China.
But top Chinese officials have been reiterating that instead of a one-off
revaluation, the exchange rate regime will be made more flexible
gradually.
In a May 10 report to the Senate, the US Treasury Department decided
against accusing China of tampering with its exchange rate, acknowledging
the positive measures adopted by the Chinese Government to open up the
financial market and promises to allow the currency to trade more freely.
Foreign Ministry spokesman Liu Jianchao said on May 11 that the
government would continue to push for the reform of further exchange rate
flexibility.
Meanwhile, to cushion the impact of the ballooning trade surplus and
foreign exchange reserves on the domestic economy, the central bank is
likely to further tighten monetary policy to curb a rebound of loan and
investment growth, said Gao Shanwen, chief economist at Everbright
Securities.
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