China set the strongest yuan exchange rate in years yesterday after Beijing came under renewed pressure at the G20 summit over the weekend to let the currency appreciate.
The People’s Bank of China said it set the central parity rate — the center point of the currency’s allowed trading band — at 6.7890 to the dollar, a fraction stronger than Friday’s 6.7896.
It was the strongest level policymakers have set since China removed its currency peg in July 2005 and moved to a tightly managed floating exchange rate, but analysts said the move did not signify a major shift.
China’s central bank has pledged to let the yuan trade more freely against the dollar, but ruled out dramatic moves in the currency or a one-off appreciation.
The action was widely seen as a bid to head off an ugly spat at the G20 meeting following months of intense pressure on Beijing to embrace currency reform as part of efforts to enhance global economic recovery.
The currency appreciated 0.53 percent against the greenback over the course of last week.
In trading yesterday, the yuan was slightly weaker at about 6.7912 to the dollar. Analysts downplayed the significance of yesterday’s move, saying it might temporarily appease critics, but did not presage a significant revaluation.
The slight increase in the yuan was a deliberate attempt by Beijing to make its currency policy “more acceptable” to critics, Beijing-based Citigroup economist Ken Peng said. “I don’t think they are in a hurry to appreciate the currency.”
Some experts say the yuan is undervalued against the dollar by up to 40 percent.
US lawmakers have threatened to press ahead with legislation that would treat “currency manipulation” as an illegal subsidy and enable the US authorities to impose tariffs on Chinese goods.
However, Chinese leaders attending the G20 summit in Canada said Beijing would not bow to international pressure for a stronger yuan, with Chinese President Hu Jintao (胡錦濤) saying trade friction should be addressed through “dialogue and consultation.”
In a further sign policymakers are in no hurry to surrender control of the currency, central bank adviser Xia Bin (夏斌) said China would need to maintain a managed floating exchange rate for the next five to 10 years.