Yuan strengthens against the U.S. dollar
June 28, 2010 Category Macro-economy, Weekly
The yuan rose to a record high against the dollar on June 21, the first time the yuan has broken the psychologically-important level of 6.8 against the greenback. The yuan has been de facto pegged to the U.S. dollar since the middle of 2008 at around 6.83 to minimize the impact from the global financial crisis on Chinese exporters. The yuan is allowed to fluctuate by a 0.5% daily trading band, whose upper limit was never tested. The People’s Bank of China (PBOC) set the yuan’s central parity rate at the highest level against the U.S. dollar in five years, reaffirming its pledge to allow increased flexibility of the yuan. The parity rate was 6.7896 on June 25, 0.56% higher than a week ago, and the highest since July 2005, when the country started its yuan appreciation process. But economists have warned that if the European debt crisis does not improve and the euro and other major currencies continue to depreciate, the yuan is expected to depreciate, too. Yuan currency flexibility may not produce the rapid gains China’s trading partners would like. Analysts expect the yuan will be allowed to rise over time but at a pace that is too slow to soon narrow China’s huge trade surplus with the United States.
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