The renminbi yesterday reached a post-revaluation high against the US dollar, closing at 7.9587 and breaking the record set just the day before.
The reference rate of the renminbi, or yuan, was fixed at 7.9598 against the greenback yesterday. The rate is set by the central bank each day as the central parity for foreign exchange trade.
The closing price was also the lowest since China allowed the renminbi to appreciate by 2 percent against the US dollar to 8.11 last July, and linked the currency to a basket of currencies instead of the greenback alone.
On May 15, the reference rate fell below 8 to 7.9982 for the first time in 12 years.
Traders have high expectations of further appreciation of the renminbi, said Ma Qing, an analyst with CITIC Securities in Beijing.
Ma said there is still room for the yuan to climb during the rest of the year, probably reaching 7.8 against the dollar, a view that many analysts share.
The expectation of a stronger yuan has pulled in more international capital over the past year, as reflected in the increasing keenness of qualified foreign institutional investors (QFIIs) to invest in the country.
By the end of July, China had approved 45 QFIIs with a total investment quota of US$7.5 billion and they have already remitted capital worth 55.1 billion yuan (US$6.9 billion), according to official figures.
More QFIIs are expected to enter the country with the authorities recently lowering the entry threshold and relaxing controls over management of investment quotas and trading accounts.
Overseas financial institutions such as HSBC and Goldman Sachs expect the central bank to take further steps toward greater exchange rate flexibility for the rest of the year, such as increasing the currency's daily volatility by making better use of the 0.3 percent upward and downward trading band or further widening the band.
Meanwhile, senior US officials have recently been pushing for greater appreciation of the renminbi to reduce their country's trade deficit with China.
However, Fan Gang, a Chinese economist newly elected as member of the central bank's monetary policy committee, said on Tuesday that renminbi revaluation would not solve the problem of US deficits because the root of the problem does not lie in China.
"The current problem is not renminbi revaluation, but dollar devaluation," Fan told a conference at the Australian National University. "This is the major cause of the current imbalance."
(China Daily August 31, 2006)