Posted by
alfredlester on Saturday, June 26, 2010 5:30:18 AM
HONG KONG — China on Friday allowed its currency to close at the strongest level against the dollar since its revaluation in 2005, just as global leaders assembled for a summit in Canada over the weekend.
The central bank set its key daily reference rate for the renminbi at 6.7896 per dollar on Friday, the fifth trading day since Beijing pledged greater currency flexibility last weekend. The renminbi ended the day at nearly exactly that level, making for a total gain against the dollar this week of 0.5 percent.
Small as they may seem, the past week’s moves have been highly significant. Beijing has faced mounting pressure from abroad to let the renminbi strengthen against the dollar, and its decision to begin at least a small rise could take some of the sting out of the sensitive currency issue when Group of 20 leaders meet in Toronto.
Before China pledged to promote currency flexibility, the issue was expected to dominate the G-20 talks. Now leaders are expected to focus on the Europe debt crisis and financial regulation.
So far, China’s policy shift has earned guarded praise, with President Barack Obama on Thursday saying that the shift represented progress, but that it was too early to tell if the eventual rise in the renminbi would be enough to help rebalance the global economy.
Many economists and U.S. politicians have argued that the renminbi’s current value — maintained by the Chinese authorities over the past two years in an effort to bolster the economy during the global downturn — is artificially low, and that this gives Chinese exporters an unfair advantage over manufacturers in the United States guaranteed online personal loans.
Beijing has long signaled that any appreciation will be gradual, and will come on its own terms, rather than in response to international pressure.
Its careful messaging this week — conveyed in part through the levels of the daily reference rate — appeared to underline this point.
“The emphasis is on stability,” said Glenn Maguire, Asia economist at Société Générale, at a media briefing in Hong Kong on Friday. “They are having to stage a very fine balancing act: On the one hand, they want to be seen to be doing something. On the other, they want to prevent any speculative inflows of capital that would come with any sharper appreciation.”
Like most analysts, the Société Générale team expects the renminbi, which is commonly known as the yuan, to end 2010 only between 3 percent and 5 percent firmer against the dollar. By July 2011, they expect a rise of nearly 10 percent.
Bill Belchere, global economist at Mirae Asset, commented in a note on Friday that frictions over the currency issue are unlikely to dissipate.
“Unless China allows the renminbi to move much more aggressively than we anticipate, global trade imbalances which are already re-emerging will continue to worsen. This will heighten trade tensions and intensify volatility in global debt and foreign exchange markets,” Mr. Belchere wrote.
Chinese Currency Hits New High Ahead of Meeting