China's official exchange rate reached a new high against the US dollar yesterday after strong growth figures released this week prompted calls for Beijing to cool an economic boom by nudging up the value of its currency.
The yuan traded at 7.9815 to the US dollar on the over-the-counter market yesterday afternoon.
The new record came on the first anniversary of Beijing's move last July to cut the yuan's direct link to the US dollar and switch to setting the exchange rate against a group of foreign currencies. Since that time, the yuan has risen just 1.6 percent against the US dollar.
Yesterday evening, China's central bank raised the amount of money that banks must hold in reserve, reducing the amount avail-able for lending in an effort to cool off a credit boom that the government worries could ignite inflation.
The order, which takes effect on Aug. 15, raised the amount that most Chinese banks must keep on deposit with the central bank by 0.5 percent point to 8.5 percent of their deposits.
It was the second time in two months that Beijing has raised the reserve ratio and came after the government said on Tuesday that economic growth surged 11.3 percent in the second quarter, its highest rate in a decade.
Economists have suggested Beijing might move to slow growth by raising interest rates or allowing the yuan to rise, which might rein in the expansion by making Chinese exports more expensive.
Masahiro Kawai, an Asian Development Bank economist, said this week the growth figures were an "even stronger case" in allowing the yuan to rise.
Under the current system, the yuan is limited to moving 0.3 percent above or below a daily rate set by the central bank based on the previous day's trading. But daily moves in Shanghai's foreign exchange market have been far smaller.
Some economists suggested this week that Beijing could let the yuan rise faster by widening the trading band to 1 percent.
The central bank has recommended adopting a more flexible exchange rate system, warning that the flood of money flowing into the economy from China's export boom could add to inflation.
China's trade surplus hit a new monthly high of US$14.5 billion last month. Its global trade surplus tripled last year to US$102 billion and experts say it is expected to top US$100 billion again this year.
The government has also tried to ease pressure on its small foreign exchange markets by creating new channels for Chinese companies to move money abroad for investment.
Yesterday, the government said three banks have been granted the first quotas under a program that is to allow Chinese institutions to convert yuan into foreign currency to invest in securities abroad.
Bank of China Ltd (
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