China's national currency posted a new high against the US dollar yesterday as a high-ranking official hinted the country may soon ease limits on capital-account exchange transactions.

 

The yuan ended trading at 8.0369 against the greenback, up from Tuesday's 8.0402. It hit an intraday high of 8.0365 per dollar.

 

Yesterday's trading marked the first time the yuan has strengthened past 8.04 to the dollar since July 21, when China dropped its decade-long peg to the greenback and replaced it with a basket of currencies. The yuan immediately appreciated 2.1 percent from its long-standing 8.28 level.

 

At present, the People's Bank of China sets reference prices on the yuan based on quotes from big commercial banks, which indicate market demand, and allows a 0.3 percent daily price swing.

 

Traders said they expect the yuan to continue to strengthen gradually against the dollar as China moves toward a more market-oriented foreign exchange system.

 

The government will allow the yuan to be convertible for most companies' capital accounts "soon," the Shanghai Securities News reported yesterday, citing Zou Lin, director of capital management at the State Administration of Foreign Exchange.

 

Capital accounts track investment flows into and out of a country.

 

Zou's comments reaffirmed China's long-stated goal to eventually loosen limits on foreign currency exchange.

 

"We do not view it as a change in policy. China is reforming its capital accounts -- carefully and gradually relaxing controls on many of the 43 different lines of the capital account," Stephen Green, senior economist of Standard Chartered Bank, said in e-mailed comments. "We think this is the right way to do things."

 

"We think there will be no substantial change in yuan policy this year," he said.

 

He expects a slow appreciation against the US dollar of around 3 percent over the year, with more volatility being introduced into spot prices.

 

The government will encourage capital outflow and maintain a balance between its capital inflow and outflow, said Zou, who added that the full convertibility of the yuan remains a "long-term" goal.

 

(Shanghai Daily March 2, 2006)