China's currency on Tuesday dropped against the strengthening U.S. dollar for the 11th consecutive day, the longest continuous fall since it was unpegged from the dollar in July 2005.
The central parity rate of the yuan, or Renminbi (RMB), was 6.8659 to the dollar, according to the China Foreign Exchange Trading System. The reference rate was down 21 basis points from the previous trading day.
Analysts attributed the depreciation to the stronger dollar
buoyed by the further falling prices of crude oil futures on Monday in international markets.
The dollar also strengthened against the euro on weak industrial output data released by France and expectations about downward revisions for GDP data in the euro zone.
The continuous depreciation of the RMB was also partly due to export concerns in China, said Zhang Bin with the research institute of world economy and politics under the Chinese Academy of Social Sciences.
Shi Lei, a global financial market analyst with the Bank of China, said last week that the yuan's rapid appreciation in the first half had driven many exporters to bankruptcy by increasing the prices of their products denominated in the dollar, threatening the country's economic growth.
To ease the situation, Shi said, slowing RMB appreciation to lower the prices of exports would be an effective measure.
The RMB has appreciated by more than 20 percent against the U.S. dollar since July 2005. This helped weaken appreciation expectations over past weeks, said Ding Zhijie, deputy head of the finance school of the University of International Business and Economics.
Ding believed the revised regulations on foreign exchange management, which were promulgated last week, would not affect RMB revaluation in the short term. But the new rules had sent out signals for increasing the currency's convertibility under capital accounts, which was the precondition for the RMB to rise to an equilibrium level.
Ding was echoed by Li Huiyong, a senior macro economic analyst with Shenyin-Wanguo Securities, who noted the recent continuous falls of the yuan would not reverse the upward trend of the currency in the longer term.
Li argued fundamental factors shoring up RMB appreciation had not changed, citing supply and demand for China's forex reserves and improving productivity of Chinese enterprises.
On Tuesday, the Renminbi gained 277 basis points against the euro to 10.2371 yuan, and 120 basis points against 100 Japanese yen to 6.2329 yuan.
(Xinhua News Agency August 12, 2008)