Yuan closes at new high vs. dollar
Updated: 2006-01-20 19:31
In its biggest one-day shift since a revaluation six
months ago, China's currency rose Friday to a new high against the U.S. dollar.
A Chinese bank employee counts yuan notes at
the Bank of Beijing, July 22 2005.
The yuan closed at 8.0601 to the dollar on the automatic
price-matching system after trading in a range of 8.0639 to 8.0601, traders
said. The yuan closed Thursday at 8.0673.
China revalued the yuan by 2.1 percent last July to 8.11 yuan to the dollar.
At the same time, it also shifted to basing the yuan's value on a basket of
major currencies including the dollar. But the yuan's movements are kept within
a narrow range of 0.3 percent above or below its opening level each day.
Since that time, the yuan has only risen 0.6 percent against the dollar.
Rising short-term interest rates in China encouraged market participants to
sell dollars for yuan and the central bank did not try to prevent its rise, some
traders said. On the stock exchange, the seven-day repurchase agreement rate, a
benchmark for short-term rates, ended at 5.495 percent, sharply higher than
Thursday's close of 4.555 percent.
China has indicated it will resist pressure from the United States and other
trading partners for major currency shifts, despite arguments that the yuan
remains undervalued, making Chinese-made goods artificially cheap in overseas
On Friday, the China Economic Times carried an article by a prominent
government economist acknowledging that the yuan remains undervalued.
But Zhu Baoliang, chief economist at the State Information Center, a think
tank within the state planning agency, said Beijing could not afford to let the
yuan's value rise by much because it needs to keep exports strong both to absorb
excess factory output and to contain unemployment.
Zhu forecast that China's foreign exchange reserves, which surged to $818.9
billion last year, would rise this year to $950 billion.
The rate of increase in China's trade surplus, which more than tripled in
2005 to $102 billion, is expected to moderate, with the surplus in 2006 likely
to be around $110 billion, Zhu wrote.