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Is China resuming yuan appreciation?

English.news.cn   2010-04-08 21:15:47 FeedbackPrintRSS

BEIJING, April 8 (Xinhua) -- China's currency made headlines Thursday amid increased speculation the government will resume its appreciation, but analysts said it is too early to make such a conclusion.

The central parity rate of the yuan, China's currency, also known as the renminbi (RMB), was unchanged from the previous day's 6.8259 per U.S. dollar on Thursday, the lowest since May 2009, according to the China Foreign Exchange Trading System.

The strengthening of yuan was interpreted as a signal that China was about to resume yuan appreciation, after the U.S. Treasury Department announced it would delay the publication of a report that may have labeled China a "currency manipulator."

However, it was still too early and arbitrary to make such a judgment based on several days' observation of the yuan's movement, said Zuo Xiaolei, an economist with the Beijing-based Galaxy Securities.

Allowing the yuan to appreciate against the U.S. dollar without reforming the exchange rate formation mechanism would be "a disaster" for China, but reforming the mechanism does not mean allowing the yuan to appreciate, Zuo said.

If the RMB started to strengthen against U.S. dollar under current conditions, expectations for further appreciation would be increased, which would accelerate the influx of speculative international capital and lead to serious inflation and asset bubbles in the country, she said.

China unpegged the yuan from the U.S. dollar in July 2005 and allowed it to fluctuate against a basket of currencies. It gained 21 percent before stabilizing against the dollar in the middle of 2008.

China's central bank governor Zhou Xiaochuan indicated last month the current exchange rate policy was part of the country's stimulus package, and the country would cautiously choose the timing to move from the "special policy" to a "regular policy."

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Editor: Wang Guanqun
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