Central bank pegs yuan rate at new record high
Updated: 2011-05-10 07:50
By Wang Xiaotian (China Daily)
BEIJING - The People's Bank of China set the yuan's reference rate at a new record high of 6.4988 per dollar on Monday, right ahead of the annual China-US Strategic and Economic Dialogue held in Washington.
The central bank set the yuan's reference rate 0.02 percent stronger than it was the previous trading day, the biggest change since July 2005 when China started to liberalize the yuan's exchange rate.
As of 5 pm in Shanghai, the yuan was being traded at 6.4937 per dollar, according to the China Foreign Exchange Trade System.
The yuan broke the symbolic threshold of 6.50 against the dollar on April 29, when it was set at 6.4990. It reached 6.4892 on the same day in market trading, setting the highest level since 1993.
While the hike in the yuan's exchange rate is being interpreted as a move taken ahead of the dialogue to alleviate the pressure from outside for yuan appreciation, analysts said the yuan should not rise abruptly by a large margin as is being demanded by some countries.
"One-off revaluation in the short term will put China in a difficult situation," said Zhang Monan, an economist at the State Information Center, a think tank under the National Development and Reform Commission. "At the corporate level, the adverse impact of yuan appreciation has loomed large; enterprises are very hesitant to sign any large-scale, long-term agreements."
At meetings on Monday, Vice-Premier Wang Qishan and State Councilor Dai Bingguo met US delegations led by Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton, and attended meetings with dozens of Chinese and US agencies and departments. The meetings will continue on Tuesday.
The yuan exchange rate is expected to remain a hot issue on the agenda because the Obama administration and legislators have been blaming China for giving its exporters an unfair competitive advantage by keeping the yuan artificially cheap.
"Concerning the yuan's exchange rate, frankly, I admit the two sides have different views, therefore further discussion is needed," Zhu Guangyao, vice-minister of finance, said earlier to reporters.
He noted that the US and China agree on the direction of the yuan's exchange rate reform but "China insisted on deepening reform of the exchange rate formation mechanism, while the US emphasized the appreciation magnitude."
The currency has appreciated by almost 1.9 percent against the dollar since the start of this year, and has picked up by nearly 5 percent against the greenback since last June, when the central bank vowed to make the exchange rate formation mechanism more flexible.
Geithner said last week that further yuan appreciation and less dependence from China's financial system on officially set interest rates would give China an "enhanced" ability to curb inflation.
But Chinese experts said the export sector will suffer if the yuan's value rises fast and the country will suffer from lost jobs while the appreciation may not solve China's inflation problem.
China has raised interest rates and reserve requirements for lenders - the proportion of money they must set aside as reserves - and has resorted to price control to check inflation, but inflation remained white hot at 5.4 percent in March, the largest leap since July 2008.
Premier Wen Jiabao last month pledged to increase the flexibility of the yuan's exchange rate to ease inflationary pressure, viewed as a signal that China may accept a faster pace of yuan appreciation to dampen imported inflation.
Zhang said faster yuan appreciation may not soothe inflationary pressure because it will lead to increased capital inflows and add to excessive domestic liquidity, which in turn could cause more serious inflation.
"The current level of yuan against the dollar is fairly reasonable, considering both the domestic and international economic situation," she said. But she predicted the yuan will still rise by 5 or 6 percent in 2011, given China's efforts to accelerate internationalization of the currency.
"Probably 3 percent for the first half and 2 percent for the second half," said Zhang.
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