The renminbi yesterday reached a post-revaluation high against
the US dollar, closing at 7.9587 and breaking the record set just
the day before.
The reference rate of the renminbi, or yuan, was fixed at 7.9598
against the greenback yesterday. The rate is set by the central
bank each day as the central parity for foreign exchange trade.
The closing price was also the lowest since China allowed the
renminbi to appreciate by 2 percent against the US dollar to 8.11
last July, and linked the currency to a basket of currencies
instead of the greenback alone.
On May 15, the reference rate fell below 8 to 7.9982 for the
first time in 12 years.
Traders have high expectations of further appreciation of the
renminbi, said Ma Qing, an analyst with CITIC Securities in
Beijing.
Ma said there is still room for the yuan to climb during the
rest of the year, probably reaching 7.8 against the dollar, a view
that many analysts share.
The expectation of a stronger yuan has pulled in more
international capital over the past year, as reflected in the
increasing keenness of qualified foreign institutional investors
(QFIIs) to invest in the country.
By the end of July, China had approved 45 QFIIs with a total
investment quota of US$7.5 billion and they have already remitted
capital worth 55.1 billion yuan (US$6.9 billion), according to
official figures.
More QFIIs are expected to enter the country with the
authorities recently lowering the entry threshold and relaxing
controls over management of investment quotas and trading
accounts.
Overseas financial institutions such as HSBC and Goldman Sachs
expect the central bank to take further steps toward greater
exchange rate flexibility for the rest of the year, such as
increasing the currency's daily volatility by making better use of
the 0.3 percent upward and downward trading band or further
widening the band.
Meanwhile, senior US officials have recently been pushing for
greater appreciation of the renminbi to reduce their country's
trade deficit with China.
However, Fan Gang, a Chinese economist newly elected as member
of the central bank's monetary policy committee, said on Tuesday
that renminbi revaluation would not solve the problem of US
deficits because the root of the problem does not lie in China.
"The current problem is not renminbi revaluation, but dollar
devaluation," Fan told a conference at the Australian National
University. "This is the major cause of the current imbalance."
(China Daily August 31, 2006)