January 14, 2011Yuan Hits New Record High at 6.5896 per USD
The Chinese yuan strengthened to a record high against the U.S. dollar Friday, the central parity rate reaching 6.5896, the second straight day it has been set below 6.6 per dollar.
The exchange rate of the currency, also known as the renminbi (RMB), was set 101 basis points lower than Thursday's 6.5997, according to the China Foreign Exchange Trading System.
The rate has risen by more than 3 percent since the country's central bank announced in June 2010 it would further reform the yuan exchange rate formation mechanism to improve its flexibility.
On China's foreign exchange spot market, the yuan can rise or fall 0.5 percent from the central parity rate each trading day.
The central parity rate of the RMB against the U.S. dollar is based on the weighted average of the enquired prices of all market makers before the opening of the market each business day.
Analysts attributed the yuan's strong performance to the fundamentals of the Chinese economy and also short-term factors.
Ba Shusong of the Development Research Center of the State Council, China's cabinet, said the rise of the yuan reflected the country's need to rein in inflationary pressures.
Voices and Facts
U.S. Treasury Secretary Timothy Geithner claimed on Wednesday China's management of its exchange rate and its restrictions on capital flows have the effect of keeping the Chinese currency substantially undervalued.
"It's nothing new. He was trying to pressure China, to shift people's attention from U.S. problems to other issues," said Zhang Yansheng, director of the National Development and Reform Commission's Research Institute of Foreign Economic Relations.
"In fact, he admitted indirectly that the U.S. has been restricting China's trade and investment opportunities in the U.S.," he said, adding that the speech lacked sincerity because Geithner said the U.S. ability to move on would depend on how much progress they see from China.
"It made the appeal for economic cooperation a political event," Zhang said.
According to statistics with China's Ministry of Commerce, by the end of Oct. 2010, U.S. companies' actual investment in China had hit 64.6 billion U.S. dollars.
That compares with China's direct investment (non-financial) into the U.S. of 4.22 billion U.S. dollars during the same period.
"That shows the inequality between China and the U.S. in terms of market openness," said Zhao Jinping, a researcher with the Development Research Center of the State Council.
NEW MOVES TO PROMOTE INTERNATIONALIZATION THE YUAN
On Thursday, China said that qualified Chinese businesses and banks may settle their overseas direct investment in yuan, a move that expands the Chinese currency's global reach and eases excess liquidity concerns domestically.
On Jan. 11, China, in a first, allowed residents of the eastern city of Wenzhou to invest abroad as individuals. An adult Wenzhou native is permitted to buy no more than 200 million U.S. dollars in foreign exchange per year under the scheme.
The following day, the New York City branch of state-owned Bank of China said on its website it had begun offering yuan-denominated accounts. The account holders may exchange up to the yuan equivalent of 4,000 U.S. dollars per day, with a limit of 20,000 U.S. dollars per year.
Trading in U.S. dollars has become increasingly active as the yuan strengthens, dealers said.
According to research by the Industrial Bank, fluctuations in the yuan's central parity rate have been closely related to the international price of oil.
Lu Zhengwei, Industrial Bank's chief economist, said the recent rise in international oil prices has boosted the yuan.
The development echoes market speculation that China will allow appreciation of its currency to control inflation.
http://english.cri.cn/6826/2011/01/14/168s615372.htm
