Paulson urges faster yuan revaluation

Updated: 2007-02-01 15:24

As they did in the past years, some lawmakers in the Congress vow that they would introduce punitive legislation this year if Beijing does not take far more concrete steps on currency and other issues, including opening up the country to American banking and insurance services.

Paulson told the senators that he had tried to persuade China that it was in its interest to achieve a flexible exchange rate, emphasizing that to keep its currency high, the Chinese government must intervene aggressively in the currency markets, buying huge numbers of dollars .

The yuan rose the most in more than five months after Paulson defended China's policy of allowing gradual appreciation and called for greater exchange-rate flexibility.

China may be rewarding Paulson after he requested patience during the Senate testimony, said Nizam Idris, a currency strategist at UBS AG. The People's Bank of China set the highest daily reference rate since the government ended a fixed exchange rate to the U.S. dollar in July 2005.

"Yuan gains could be China's way of reciprocating the lack of pressure from Paulson," said Singapore-based Nizam. "China doesn't like to appreciate the yuan under what is perceived as foreign pressure. They prefer to do it on their own accord."

The yuan rose 0.15 percent to 7.7620 against the dollar as of 2:26 p.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency climbed as much as 0.25 percent, the most since Aug. 17. It may reach 7.35 by the year's end, Nizam said.

China may implement "big changes" to foreign-exchange policy this year because of its trade surplus and excess cash in the banking system, China Securities Journal said, citing unnamed sources. The trade surplus swelled 74 percent last year to a record $177.5 billion, sending foreign-exchange reserves to $1.07 trillion and making it difficult for China to cool growth.


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