Banking

Long march of China's currency yuan

(Xinhua)
Updated: 2010-07-22 15:37

The central parity rate of the yuan was set at 6.7802 per US dollar on Wednesday, according to data released by the China Foreign Exchange Trading System. The currency is allowed to float on the inter-bank market within a daily limit of 0.5-percent each way of the central parity rate.

"There is no basis for a sharp appreciation of the yuan in the short term. The movement of the yuan's exchange rate against the US dollar in the coming 5 to 10 years will depend upon US monetary policy," Li said.

Large fluctuations in the yuan exchange rate would not only hurt China's exports, but also dampen the global trade improvement, said Ding Zhijie, professor at the Beijing-based University of International Business and Economics.

"China is now the world's largest exporter, but processing trade takes up a large part in the country, which means a fall in China's exports will affect exports in many other countries," Ding said.

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China needs to follow a managed floating of its exchange rate, which is a fundamental need for its economic restructuring and the optimizing of the allocations of its resources, Hu Xiaolian, PBOC deputy governor said.

This policy would reduce China's trade imbalance and excessive reliance on exports and help sustain economic growth by relying more on domestic demand, Hu said.

Despite efforts to increase the flexibility of the yuan exchange rate, China is also striving to push forward its internationalization, which analysts believe has a long way to go.

The new development is in the expansion of yuan trade settlements. Cross-border yuan trade settlement is now allowed in all countries and regions, after starting first in Hong Kong, Macao and 10 member states of the Association of Southeast Asian Nations.

Another much-anticipated move is the establishment of an international board on the Shanghai Stock Exchange, a step forward to internationalize the yuan.