Chinese currency hits new high against U.S. dollar

Associated Press

SHANGHAI, CHINA — China's currency rose to a fresh high against the U.S. dollar on Monday, as the central bank set its rate at 7.8402 yuan per dollar, the highest level since the current exchange system was set up in July 2005.

The People's Bank of China, the central bank, did not comment on the abrupt shift in the official parity rate — a weighted average of prices given by market makers, excluding the highest and lowest offers — to well above 7.8500.

But traders said the dollar's slide to a 19-month low against the euro in international markets Friday may have helped trigger the U.S. unit's slip against the yuan.

The dollar was at 7.8423 at around 7:30 GMT, down from Friday's close of 7.8525. On the automatic price-matching system, another way of measuring the exchange rate, it was at 7.8413 at 7:20 GMT.

That means Beijing has allowed the yuan's value to rise by about 3.3 per cent since it revalued the currency by 2.1 per cent in July 2005, severing the yuan's virtual peg with the dollar.

China allows the dollar-yuan rate to move no more than 0.3 per cent above or below the daily parity rate each day. Other currency pairs — the yuan's values against the yen, euro, Hong Kong dollar, and British pound — are allowed to move within 3 per cent of the parity rate each day.

Washington has been prodding Beijing to let its currency float more freely with market forces, arguing that controls keep the yuan undervalued, giving Chinese exporters a price advantage overseas and adding to China's trade surplus with the U.S., which hit a record $202-billion (U.S.) last year.

President George W. Bush faces growing pressure to counter that trend following the Democrats' capture of Congress in elections earlier this month.

American officials are expected to raise the currency issue in a top-level U.S. mission to Beijing next month, led by Treasury Secretary Henry Paulson and Commerce Secretary Carlos Guiterrez. In an unusual move, Federal Reserve Chairman Ben Bernanke is expected to accompany the delegation.

China says it plans to allow market forces to play an increasingly important role in determining the yuan's value but that such changes must come gradually to allow Chinese financial institutions and manufacturers time to adapt.

Overall, the yuan has gained about 5.1 per cent in value against the dollar since before its revaluation in July 2005.