25 July 2005, 13:32  Yuan Rises 0.02 Percent

The yuan rose 2 hundredths of a percent Monday on China's small, tightly controlled currency exchange, as a central bank official was quoted as saying China's decision to sever its currency's peg to the dollar won't solve trade imbalances overnight but will buy time for industry reforms. Yu Yongding, a member of the central bank's Monetary Policy Committee, also said pressures for the Chinese yuan to strengthen would continue to grow even after the move last week to let its value rise by 2 percent, according to a government newspaper. China on Thursday revalued the yuan at 8.11 to the dollar and said it would link the currency's value to a basket of unspecified currencies after a decade of fixing its rate at 8.277 to the dollar. The new system allows the yuan to move as much as 0.3 percent higher or lower than the previous day's close. The yuan was trading Monday afternoon at 8.1097 to the dollar, two hundredths of a percent above its Friday closing price of 8.1111. The Chinese government has tried to emphasize the yuan's stability under the new system, saying exchange-rate policy will serve domestic economic needs and not hurt Chinese industry. It has also warned against expecting a big shift in China's trade imbalances. The United States had been calling for a stronger yuan to make Chinese exports more expensive in U.S. markets and make American products cheaper for Chinese consumers. Also Monday, news reports said the Chinese government told U.S. officials in advance of its plan to drop its currency's link to the dollar. U.S. Treasury Secretary John Snow learned more than one month ago of the tentative plan and Chinese officials gave him details on the change and its timing before the announcement, The Financial Times and The Asian Wall Street Journal said. The unusual advance disclosures by the secretive Chinese government helped to smooth the way for the change and assure American support, the newspapers said, citing unidentified sources.

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