China's currency strengthened on Friday to its highest level against the U.S.
dollar since its July 21 revaluation on heightened market forces, a weakened
dollar and technical rebounds.
The China Foreign Exchange Trade System announced the daily benchmark, or the
central parity rate for the dollar was 8.0286 yuan, falling for the first time
below 8.03 yuan.
The Chinese currency, also known as renminbi or RMB, has gained nearly 1
percent against the dollar following a 2 percent revaluation, with the biggest
daily increase charted on Wednesday.
The People's Bank of China (PBoC), or the country's central bank, early this
year began a new policy of calculating the yuan's value against the U.S. dollar
using a weighted average of the prices given by major banks. The highest and
lowest offers are excluded from the calculation.
Giving banks a role in setting the daily exchange rate is seen as a sign that
the central bank is willing to allow market forces a greater role in daily
trading, analysts acknowledge.
In an interview with Xinhua, finance analyst Tan Yaling with Bank of China
agreed the yuan's recent rises show the market is a more important decider for
its value.
She echoed the claim by Premier Wen Jiabao at a press conference at the
annual session of China's top legislature earlier this week that "Renminbi
boasts the room and capacity for floating up or down by itself in line with
current mechanism and market changes."
Tan said the yuan rise reflects the market confidence in China's robust
economic prospects and long-run investment yields, citing the country's ample
foreign exchange reserves, stable trade growth and increased market
transparency.
It is also brought by the dollar's weakening against other major world
currencies on lower-than-expected economic figures provided by the U.S.
government and a rebound after unexpected declines earlier this week, she said.
The U.S. pressure on China's currency issue built up as China's trade surplus
with the United States hit a new high in 2005. Statistics provided by China and
the United States differ significantly. China said the total trade surplus with
other countries came to 100 billion U.S. dollars last year amid increasing trade
disputes.
Foreign exchange reserves surged to 818.9 billion dollars by the end of last
year - second only to Japan - largely as a result of skewed trade and foreign
exchange management.
U.S. senators Charles Schumer, Lindsey Graham and Tom Coburn, who are leading
an effort to force trade and currency "concessions" from China, will be
reportedly in China next week to discuss growing concerns in the U.S. Congress
about Chinese trade practices, currency policy and intellectual property rights.
The visit comes as the Senate nears a March 31 deadline for a vote on a bill
written by Schumer and Graham that would impose a high tariff on Chinese goods
to counter what they call artificial currency exchange rates that benefit
Chinese manufacturers at the expense of American producers.
"We thought it was the right time to figure out where the Chinese are headed
on this issue and other issues, like intellectual property and port security,"
Schumer said.
The PBoC, however, reiterated in its annual monetary report released at the
end of February that the yuan will remain "basically stable" at a reasonable,
balanced level this year.
The "independent, controllable, progressive" way whereby China reforms its
currency system will continue, while priority will be placed on promoting
balanced international payments, it said.
The bank emphasizes a floating yuan is not simply one that will appreciate,
but the prevailing view among industry watchers is that the yuan will strengthen
gradually in 2006.
Tan said she believed the U.S. dollar would be traded at around eight yuan
this year, and in the first six months gains would outweigh losses for the
yuan.