CHINA / National

Yuan falls on weak Asian currencies
(Bloomberg News)
Updated: 2006-04-13 16:16

China's yuan had the biggest two-day drop against the US dollar since July's revaluation, adding to signs the central bank is allowing wider swings in the currency, Bloomberg News reported.

The yuan's 0.18 percent slide in the past two days followed declines in other Asian currencies that the Chinese central bank has used as a reference for managing its exchange rate. The People's Bank of China, China's central bank, has called for more flexibility in the yuan to help Chinese companies cope with foreign-exchange risk.

"The yuan has to move up and down with equal force, otherwise traders don't get to experience more volatility," said Stephen Green, senior economist with Standard Chartered Bank in Shanghai. "Market forces are playing more of a role."

The yuan fell 0.09 percent to 8.0192 against the dollar as of 1 pm Thursday in Shanghai, according to data compiled by Bloomberg. The currency has risen 1.1 percent since China July 21 revalued it 2.1 percent to 8.11, ending a decade-old peg to the dollar.

The currency has only had one other two-day drop exceeding 0.1 percent since the revaluation, on March 7-8. Currently, the yuan is allowed to trade 0.3 percent either side of a given rate by the central bank. The yuan's given rate Thursday was 8.0248, from 8.0120 Wednesday.

Sebastien Barbe, an economist in Hong Kong at Calyon, the investment banking unit of Credit Agricole SA, said:"We're going to see periods of depreciation like this. This is giving the signal there's going to be a lot more market volatility."

Asian currencies such as the South Korean won, which is in the basket that China uses to value the yuan, dropped for a fourth day as overseas investors sold stocks and rising crude oil prices lifted demand for the dollar.

China's corporations and financial institutions are far from adapting to a flexible yuan, central bank vice Governor Wu Xiaoling said. "The exchange rate is decided by the market," Foreign Ministry Spokesman Qin Gang said March 30.

China's purchases of huge US goods may also increase demand for the dollar, said Guo Zhaoyang, a foreign-exchange analyst in Guangzhou at China Everbright Bank.

Chinese Vice Premier Wu Yi witnessed the signing of more than 100 contracts with US companies such as Boeing Co. and Motorola Inc. worth a combined $16.2 billion. Chinese airlines signed a deal to buy 80 aircraft worth $5 billion from Boeing.

China's government wants to move to a more freely traded currency system and "everyone has to adjust," the central bank's Wu told reporters Wednesday during a financial forum in Beijing.

"The central bank knows that to develop an onshore market, they need two-way movements" for companies "to learn to manage positions and risk," Standard Chartered's Green said.


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