CHINA’S YUAN hit a five-year peak yesterday after Beijing suddenly relaxed controls ahead of this weekend’s G20 summit, sparking stock gains around the world and questions about just how far China’s new currency flexibility would go.
China’s central bank has maintained a de facto peg since the middle of 2008, a controversial policy aimed at steadying the world’s fastest-growing major economy during the global economic downturn.
But the People’s Bank of China (PBOC) stepped aside yesterday after its surprise weekend announcement that it would allow more flexibility for the yuan, buying some time against critics who argue the currency is undervalued and gives China an unfair advantage in trade.
US stocks climbed, mirroring gains on overseas markets, as investors bet that China’s currency move would invigorate global economic recovery and raise long-term prospects for US multinationals.
The central bank ruled out a one-off revaluation of the yuan and suggested it was close to fair value.
China’s major trading partners welcomed the decision, which the European Central Bank chief Jean-Claude Trichet said “goes in the direction of more stability and more prosperity at the global level for all partners”.
“We’re obviously encouraged,” White House spokesman Bill Burton told reporters in Washington.
But analysts said Beijing still needs to do more to show the G20, whose leaders meet in Canada at the weekend, that it is serious in its commitment to make the yuan more flexible and address global trade imbalances.
“Some countries will want to see more detail and perhaps even a schedule of some sort,” Canadian finance minister Jim Flaherty told reporters in New York yesterday.
US ambassador to China Jon Huntsman called China’s move a genuine attempt at currency reform and predicted it could smooth sometimes testy Sino-US relations. “I think it takes an irritant off the table in the US-China relationship,” he said following a speech in Hong Kong.
Some of China’s strongest critics in the US Congress are unlikely to be impressed, however, and US officials have signalled they will press for vigorous implementation of the new policy.
Nevertheless, Beijing’s move on the yuan – although small by comparison with freely floating currencies – provided an unexpected boost ahead of the G20 meeting.
China’s central bank, after setting the mid-point for Mondays trading range, let the yuan rise 0.42 per cent to 6.7976 per dollar, both the biggest daily gain and the highest close since China revalued the currency in 2005. – (Reuters)
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