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Renminbi passes HK dollar

By Jake Lee and Yumi Teso (China Daily)
Updated: 2007-01-12 09:06

The yuan has risen past the Hong Kong dollar for the first time in 13 years, underlining the mainland's economic ascent and fueling debate over whether to scrap the special administrative region's exchange rate link to the US dollar.

The yuan climbed to 1.0002 per Hong Kong dollar and advanced 0.16 percent to 7.7950 to the US currency at 4 pm in Shanghai, the biggest gain in six weeks, according to data compiled by Bloomberg.

Gains in the yuan may add to pressure on Hong Kong to adjust a 23-year-old currency peg to the US dollar to reflect growing economic ties with the mainland. The Hong Kong Monetary Authority (HKMA) says any change would rock investor confidence and has spent the past three years stopping currency appreciation.

"Breaking 7.8 is psychologically impressive, but it's just a passing point," said C. H. Kwan, a Tokyo-based senior fellow at Nomura Institute of Capital Markets Research, a unit of Japan's biggest brokerage. "The Hong Kong dollar is likely to remain pegged to the US dollar at a central rate of 7.8 in coming years."

As the HKMA held the Hong Kong dollar steady, the yuan, or renminbi, has advanced 5.8 percent since a decade-long US dollar link of 8.3 was scrapped in July 2005.

HKMA Chief Joseph Yam, who wasn't immediately available for comment yesterday, said on August 25 that the yuan reaching 7.8 was a "psychological level" that wouldn't play a role in setting Hong Kong's currency policy.

"The Hong Kong dollar market has remained stable after the renminbi exchange rate breached the 7.8 level," said an HKMA spokesman, who asked not to be identified. "The government has no intention to change the linked exchange rate system, which continues to serve Hong Kong well."

China's trade surplus swelled 74 percent to a record $177.5 billion last year as exports surged. US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke, visiting Beijing last month, urged China to relax controls on its currency to ease the imbalance.

"This reinforces the story that China's still got huge surpluses and needs to deal with them," said Thio Chin Loo, senior currency strategist at BNP Paribas SA in Singapore. "The pressure for more gains isn't going to go away."

The mainland's stock market surpassed $1 trillion in value after major benchmarks more than doubled last year, making it the world's 10th-largest equity market, Bloomberg data show. Hong Kong's market value is $2.1 trillion.

The mainland will let companies sell yuan-denominated bonds in Hong Kong, the People's Bank of China said late on Wednesday, in a move aimed at increasing the use of the currency.


(For more biz stories, please visit Industry Updates)



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