The yuan broke through the psychologically important mark of 7.5 against the US dollar yesterday, a post-revaluation high, but analysts said it does not indicate a stronger momentum in yuan appreciation.

The People’s Bank of China set the central parity rate of the yuan at 7.4938 against the dollar yesterday morning. The previous historical high since China de-pegged the yuan from the dollar on July 21, 2005 was 7.5006, touched on October 8.

So far, the yuan has appreciated by 4.2 percent this year. Many economists have forecast a gain of 5 percent for the whole year.

The new high comes in the wake of intensified foreign pressure – from both the G7 and IMF-World Bank – on a faster yuan revaluation, but analysts said this has little to do with that pressure.

“In light of China’s principle of pushing the foreign exchange rate reform in an independent and gradual manner, the breaking of the 7.5-mark should not be taken as a sign of bowing to Western pressure,” Zhao Xijun, finance professor at Renmin University of China, told China Daily.

Wu Xiaoling, vice-governor of the central bank, refuted demand for faster yuan appreciation during a recent IMF-World Bank meeting. She said the current task for China is not to control the currency value, but to adjust the economic structure, which many economists see as the fundamental way to solve the problem of economic imbalance.

The yuan appreciation process has been gradual in recent weeks and market dealers widely expect the tempo to continue.

“It’s normal for the yuan’s value to rise gradually since it is decided by market forces, which must respond to multiple macroeconomic factors, such as China’s balance of payments, capital inflows and outflows as well as market supply-demand relations, among others,” Zhao said.

Tan Yaling, an economist with Bank of China, held that the weaker US dollar is a contributor to the rising yuan.

Source: China Daily

Copyright Fund China 2009.

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