Yuan hits new high against dollar
(Reuters)
Updated: 2006-09-05 15:51
In addition to China's need to cool its racing economy, the approach of this
month's International Monetary Fund meeting in Singapore is fanning speculation
about international pressure on the yuan, as is U.S. Treasury Secretary Henry
Paulson's maiden visit to China in September.
But China has often resisted such public pressure in the past and may even
halt the yuan's appreciation during the IMF meeting and Paulson's visit in order
to stress its policy independence. This could prompt large swings in the
exchange rate.
"The recent fluctuations of the U.S. dollar against other major currencies on
global markets have offered good excuses for the central bank to allow the yuan
to be more volatile," said a dealer at a major Chinese bank.
Recent official media reports have resumed discussing the possibility of
Chinese authorities widening the yuan's trading band to permit faster
appreciation.
The yuan may rise or fall 0.3 percent from its mid-point each day, but it has
moved only a small fraction of that range in most trading sessions since the
floating rate regime was introduced. At Monday's close, it had risen 0.14
percent from the day's mid-point, set by the central bank, of 7.9499.
Analysts therefore believe that any widening of the band will be a small one.
"The current arrangement leaves plenty room for fast (yuan) appreciation over
time," said Bank of America's Qing Wang.
"The authorities have used only about one third of flexibility allowed under
the existing arrangement. Even if the trading band were to be widened, it would
be a largely symbolic move."
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