Yuan breaks through 8.00 key dollar mark
Beijing, May 15:
China’s currency, the yuan, closed on Monday below the psychologically important 8.000 mark for the first time since a revaluation last year was supposed to herald in greater forex flexibility.
The yuan ended at 7.9976 to the dollar on the local currency exchange after a parity rate of 7.9982 had been announced by the National Foreign Exchange Center early in the day.
“There’s a lot of money floating around the world these days,” said Zuo Xiaolei, chief economist with Galaxy Securities. “And it’s already a while since the yuan started being seen as an asset set to appreciate.” The authorities permit the yuan to fluctuate inside a 0.3 per cent band around the dollar parity rate within each trading day.
China officially allows market forces a say in determining the exchange rate but the central bank is known to intervene routinely and heavily and the appreciation since July’s revaluation has been at a snail’s pace, disappointing those, chiefly the United States, who had hoped for faster change.
Many economists believe the rate at any particular point in time reflects not so much supply and demand in the market, as policy makers’ wishes — specifically for the yuan to strengthen in a controlled and gradual fashion.
“The timing is good,” said Andy Xie, Hong Kong-based chief economist with Morgan Stanley of the key move through the 8.00 yuan barrier. “It gives the impression that the action taken is not under the pressure of outsiders but just a normal action.” He noted that the move on the yuan came after the release last week of a semi-annual US Treasury report into global currency policies that stopped short of labelling China a currency manipulator.
The move also followed the politically charged visit of President Hu Jintao to the United States last month when his agenda was topped by trade and currency issues.
A US finding of manipulation could have opened the way for sanctions against Beijing on the yuan, which Washington feels is massively undervalued and gives China an unfair trade advantage.
Washington has led the charge against China over the currency but Beijing has insisted that while it wants to move to a more market-based forex system, any change will be gradual and measured against its own best interests.
The central parity rate is a weighted average price based on offers made each morning by the 11 market makers in the over-the-counter market.