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ECONOMY
Weekly Watch> WEEKLY WATCH NO. 26, 2011> ECONOMY
UPDATED: June 27, 2011 NO. 26 JUNE 30, 2011
Currency Flexibility
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Since China restarted the reform of the yuan exchange rate regime one year ago, the yuan has gained 5.5 percent in value against the U.S. dollar, with its central parity rate against the U.S. dollar reaching 6.4716 on June 17, 2011. The yuan continued strengthening in the following week, to hit a record high of 6.4683 on June 22.

On June 19, 2010, the People's Bank of China, the central bank, restarted the reform of the yuan exchange rate regime and strengthen the flexibility of the yuan.

"The reform was surely a needed boon to relieve inflationary jitters," said Zhang Bin, a researcher with the Institute of World Economics and Politics under the Chinese Academy of Social Sciences.

As international commodities prices continue to creep up this year, a stronger yuan has made imports of raw materials more affordable for Chinese enterprises, he said.

In addition, the yuan's appreciation helped redress China's trade imbalance, said Lu Zhengwei, chief economist at the Industrial Bank Ltd. In the first quarter, China even recorded a trade deficit of $1.02 billion, the first quarterly trade deficit in six years.

"The negative impact on exporters is less severe than expected," said He Liping, Director of the Institute of International Finance at the Beijing Normal University. "Inexperienced financial institutions may be more vulnerable to the currency fluctuations," he said.

One side-effect is international hot money is leaking into China, hoping to cash in on rising value of the yuan, said Ding Zhijie, a finance professor with the University of International Business and Economics.



 
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