RMB rises to record high against USD
(Xinhua)
Updated: 2006-03-19 08:32

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.