RMB sees highest exchange rate against USD since currency reform

On October 28, the 100th day after the Renminbi exchange rate reform, the accumulative growth of RMB exchange rate against US dollars exceeded the 3бы upper limit of "8.1100" to hit a record of 8.0840, the International Finance News reported.

On the inter-bank foreign exchange market that day, Renminbi continued to rise following the previous three trading days to close at 8.0840 against 1 US dollar. 3бы is the upper limit set by the central bank for daily RMB floating band. The US dollar fell 0.027 percent against RMB on that day. Since the exchange rate reform, RMB had altogether revalued by 0.32 percent against US dollar.

The continuous high position of RMB was largely due to market speculation saying China would put out further measures of exchange rate reform before President Bush's China visit. UK Financial Times quoted insiders on the same day saying US Treasury Secretary John W. Snow urged the Chinese government to again revalue the RMB exchange rate before President Bush's China visit scheduled next month.

According to He Qiang, professor with the Central University of Finance and Economics, expectation of continued RMB revaluation is mainly driven by rapid economic growth at home (since currency represents a country's economic strength) as well as the need to adjust import/export trade (since driving an economy only by continuously rising export is not in line with the "scientific concept of development"). He believes that a proper revaluation will be beneficial to economic advancement and economic structure optimization.

He Zhicheng, economist from the Agricultural Bank of China, holds that on the international market of foreign exchange, rises and falls within 15 percent is normal. Fluctuation on foreign exchange market is simply not the same idea with that on commodity price, he said. "It's improper to label the normal rise and fall of RMB as revaluation or devaluation", he said, "and it's normal if RMB rises 2 percent or 5 percent".

When asked whether there is any possibility for another one-off RMB revaluation, He said "No", explaining that the focus of next-step RMB exchange rate reform is whether it can float in a wider band against US dollar.

Talking about the future trend of RMB, He predicted rising within a limited floating band in short term, rising with occasional falls in mid-term and market-oriented free floating in long term. There is still ample room for RMB revaluation against US dollar, he pointed out.

Two points on the inter-bank foreign exchange market deserve attention, He noted. First, whether there will be more and more market participation; second; whether there will be less and less interference from the central bank. The latter can be expected, he said.

On the inter-bank foreign exchange market of October 28, the euro closed at 9.8256yuan, 100 yen closed at 7.0197 yuan and HK dollar closed at 1.0425 yuan.

By People's Daily Online