China's currency, the yuan, breached the important psychologically barrier of eight yuan to the U.S. dollar on Monday, the central bank announced amid strong market expectations.

According to a People's Bank of China announcement, the yuan's daily benchmark, or central parity rose to 7.9982 against the dollar. The currency has been inching upward since its July 21 revaluation and today's close was its highest. On Friday, the rate was 8.0082.

The central parity is based on a weighted average of enquired prices from all market makers, including major domestic banks, before the market opens each business day.

China raised the value of yuan by 2 percent and started linking it to a basket of foreign currencies last July, scrapping its decade-old peg to the U.S. dollar.

The yuan, limited to moving 0.3 percent above or below each day's parity rate against the U.S. dollar, has since risen more than 3 percent.

But the United States said the rise was too small to make a dent in its huge trade deficits with China. American manufactures contend that the yuan is undervalued by as much as 40 percent, making U.S. goods more expensive in China and Chinese products cheaper in the United States.

In an interview with Xinhua, finance expert Tan Yaling with the Bank of China said the breaching of the eight-yuan phenomenon is "actually not a surprise. Eight is a very sensitive point. There were intense market expectations (for the dollar-yuan exchange rate) to fall below 8. It did not materialize last week," she said.

"Although the central bank expects a stable exchange rate, the hopes of overseas and domestic institutions are too high."

She said China's robust economic growth, hefty bank lending and biggest foreign exchange reserves in the world combine to push the yuan higher. However, the economy's serious structural problems, featuring overheated investment, strong exports and lackluster consumer spending, do not support a currency appreciation.

Meanwhile, Tan said the yuan's rise would probably aggravate China's deflationary risks; the country's consumer price index, the leading measure of inflation, has seen a continuous decline in recent years, dropping to 1.2 percent in the first quarter.

She urged quantitative analysis, based on both Western economic theories and actual scenarios in China, to establish a reasonable exchange rate.

Source: Xinhua