RMB breaches 7.9 barrier against dollar
By Zheng Lifei (China Daily)
Updated: 2006-09-29 07:31
The renminbi yesterday strengthened to below 7.90 against the US dollar,
partially because of growing speculation that the government will soon expand
the band within which the currency is allowed to fluctuate.
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The daily benchmark, or the central parity rate for the US dollar, was set at
7.8998 yuan yesterday, the first time that the currency crossed the
psychological barrier of 7.90 since last July's revaluation, according to the
Shanghai-based China Foreign Exchange Trade System.
China discarded the renminbi's decade-old direct peg to the US dollar in July
last year, switching to a mechanism that sets the exchange rate on a basket of
world currencies such as the greenback, the euro and the Korean won.
Under the new regime, the yuan is allowed to fluctuate 0.3 per cent per day
either way of the reference rate, which is set by the central bank.
The renminbi appreciated to 7.9982 yuan against the US dollar on May 15, the
first time that the currency fell below 8 in 12 years. Since then, the
appreciation has gained pace, leading to growing calls for expanding the daily
trading band.
"The recent appreciation was largely triggered by the growing speculation
that the authorities are likely to widen the daily trading band," said Li
Yongsen, an economist with Renmin University of China.
"However, the fundamental reasons behind the currency appreciation still
remain the same: pressure from the foreign exchange reserves and mounting trade
surplus," the economist said.
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