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Yuan Surges to Highest in Five Years
Jun 28,2010 08:47CST
data analysis
Source:SMM

BEIJING, Jun. 28 -- Obama says it's too soon to tell if China's currency policy change will be sufficient

China's yuan surged on Friday to its highest level in the past five years, with the central bank setting the reference central parity rate at 6.7896 against the dollar, already more than half a percentage point higher within a week.

However, US President Barack Obama claimed on Thursday it was too soon to tell whether China's latest yuan policy change would be sufficient.

China said on June 19 that it would make the yuan more flexible, which Obama described as a "positive" move. China has made progress with the announcement that it was returning to its phased-in, market-based approach, he said at a joint press conference with Russian President Dmitry Medvedev.

He said, however, that it was too early to tell whether the approach "is sufficient to allow for the rebalancing that we think is appropriate".

The United States would closely monitor the situation, he added.

"We did not expect a complete 20 percent appreciation overnight, for example," said Obama, because that "would be extremely disruptive to world currency markets and to the Chinese economy".

A stronger Chinese currency would be good for the US, Chinese and world economies, Obama said.

Before China's latest currency policy change that ended the peg to the dollar, which was introduced two years ago to minimize the impact of the global financial crisis, the US had been fiercely criticizing the country's yuan policy.

Washington welcomed China's announcement of de-pegging the yuan from the dollar on June 19, but some US legislators and business interests are still demanding a faster and bigger yuan revaluation.

The central bank set the yuan's central parity rate against the dollar at 6.7896 on Friday, 0.56 percent higher than a week ago, the highest since July 2005, when the country started its yuan appreciation process.

Despite the strong rise in the value of the yuan, analysts said the new yuan reform is not aimed at appreciation, but rather is a market-oriented reform and people should not hope too much for a bold revaluation of the yuan.

"In the long term, it will appreciate, given China's continually expanding economy," said Zhou Shijian, a senior economist at the Center for China-US Relations of Tsinghua University. "But not for now; it cannot be ruled out that the yuan may rise or fall in the short term."

The de-pegging of the yuan from the dollar and pegging it to a basket of currencies are of much more importance than any yuan appreciation against the dollar, said Dong Xian'an, chief economist at Industrial Securities. "The main implication is not appreciation," he said.

In Beijing, Foreign Ministry spokesman Qin Gang said that a yuan appreciation would not solve the controversy surrounding China's trade surplus with the United States.

"We believe the appreciation of the yuan cannot bring balanced trade or help the US solve its unemployment, over-consumption and low savings problems," he told journalists on Thursday.

"We hope that the US can reflect on the problems of its own economic structure, instead of playing blame games and imposing pressure on others."

 

China economy macroeconomy
currency policy
RMB exchange rate
yuan's central parity rate

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