The central parity rate of the renminbi broke the 7.70 barrier
against the US dollar yesterday as the US Congress today starts a
hearing on China's alleged exchange rate manipulation.
The mid-point rate stood at 7.6951 yuan to one greenback
yesterday, the first trading day after the week-long May Day
holiday, according to the Chinese Foreign Exchange Trading
System.
It was a gain of 104 basis points from the reference rate of
7.7055 on the last trading day before the holiday and the highest
since it was de-pegged from the US dollar in July 2005.
The yuan hit a new high for the 27th time this year.
Although it breached the psychological barrier of 7.70, it only
shows that the currency is strengthening vis a vis the US dollar
and does not have any special significance, said Yan Qifa, an
economist with the Export-Import Bank of China.
The yuan's revaluation has been faster recently, gaining 287
basis points in April but "the process has remained largely stable
in recent months", Yan told China Daily.
Zhao Xijun, finance professor at Renmin University of China,
said the new rate indicates "the yuan is becoming more flexible"
after its revaluation in 2005.
"The process has gone to a stage where the market forces play an
important role in determining the rate," he said.
Market traders attributed the stronger mid-point rate to the
expected pressure ahead of the US congressional hearing on foreign
exchange "manipulation" by China and Japan.
While acknowledging the event would have some short-term effect
on the upward movement of the renminbi, Zhao said the process has
its intrinsic causes.
"The impact (from the US hearing) is insignificant," he
said.
China's strong economy which grew by 11.1 percent in the first
quarter its trade surplus and swelling foreign exchange reserves as
well as speculative capital inflows are behind the rise of the
yuan, he explained. "We want to, for example, resort to exchange
rate adjustment to reduce the trade surplus."
Washington has consistently demanded that Beijing speed up the
revaluation process and threatened punitive measures if China
refused.
"Such measures will jeopardize the interests of both," Yan
said.
Zhao said the demands from China's trade partners to revalue the
renminbi are often because of their domestic political and
industrial interests.
China has set the direction of the yuan revaluation, but must
move in line with its own situation, Zhao said.
The yuan has appreciated 5.4 percent since July 2005 and many
economists expect it to rise 4 percent against the US dollar this
year.
(China Daily May 9, 2007)