The yuan rose the most since China ended its fixed exchange rate to the US dollar in 2005 as the government signaled faster gains to cool the economy and curb inflation.
The currency climbed as much as 0.43 percent after the official China Securities Journal cited Ba Shusong (
"The economy is overheating in at least some regions," Yu Yongding (余永定), the director of the World Economics and Politics Institute in Beijing and a former central bank monetary policy committee member said in an interview yesterday. "The central bank now has more room to let the yuan rate float with more flexibility."
The yuan strengthened 0.34 percent to 7.3192 per dollar as of 2:52pm in Shanghai, according to the China Foreign Exchange Trade System. The average daily fluctuation this week of 0.27 percent is three times larger than last week's figure. The currency's 6.6 percent gain versus the dollar this year is twice as much as last year's 3.3 percent advance.
The US trade deficit with China is still set to exceed last year's record of US$232.5 billion, prompting lawmakers including Senator Charles Schumer, a New York Democrat, to propose sanctions unless the yuan controls are loosened.
US Treasury Secretary Henry Paulson called last week for faster gains, although he refrained from accusing China of manipulating its currency to make exports more competitive.
While the yuan gained against the US dollar this year, it dropped against 7 of the world's 17 most-active currencies. It slid 3 percent against the euro, 11 percent versus the Canadian dollar and 13 percent against the Brazilian real, pushing up import costs.
A 10 percent appreciation in the yuan against the US dollar would reduce the import prices of oil, soybeans and pork by about 10 percent, Ba, a deputy director at the State Council Development and Research Center, was cited by the China Securities Journal as saying.
The central bank said in a statement last Friday that it plans "forceful measures" to limit money supply, including a more flexible exchange rate.
The market will play a "much" bigger role in setting the yuan's value, policymakers said after a quarterly monetary policy meeting.
The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, has almost tripled this year pushing prices to 46 times per-share earnings, more than double that of Hong Kong's Hang Seng Index. It gained 1.6 percent yesterday.
"We're seeing some big moves in the yuan," said David Mann, senior strategist at Standard Chartered in Hong Kong.
"It makes sense for them to get more aggressive in addressing the overheating pressures in the economy," Mann said.
The currency will rise to 6.84 by the end of this year, he said.
China's central bank this month raised rates for a sixth time this year to rein in credit growth and lifted the reserve ratio to the highest in at least 20 years. The economy grew 11.5 percent in the third quarter and consumer prices rose 6.9 percent last month from a year earlier.
The country's trade surplus, which surged 52 percent in the 11 months to last month to US$238.1 billion, drove its foreign-exchange reserves to a high of US$1.46 trillion, making it difficult for the government to slow growth.
Policymakers discussed widening the yuan's trading band to 0.8 percent on either side of a fixed daily rate from 0.5 percent, the Hong Kong-based Ta Kung Pao daily said last month.
"Either widening the trading band or another revaluation, the direction of faster appreciation is already set," Yu said.
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