RMB gains before US Treasury Secretary's visit
Updated: 2006-09-19 16:29

China's currency witnessed a remarkable gain on Tuesday, nearing the 7.90 thresholds to the US dollar, one day before American Treasury Secretary Henry Paulson's visit.

The yuan, also called Renminbi, rose 0.14 percent to 7.9350 against the dollar at 2:28 pm. at the foreign exchange transaction market in Shanghai, according to data Bloomberg compiled.

The People's Bank of China, the central bank, set the central parity rate, the level from which the market rate will be allowed to move 0.3 percent on either side in the coming trading day, at 7.9342, up from 7.9431 on Monday.

The value of the yuan, a focus of the world financial markets, has gained another 2 percent since Beijing replaced a peg to the US dollar with a managed float on July 21, 2005.

Financial market analysts have linked the jump of the yuan to Paulson's first visit to China in his capacity as US financial secretary.

"China is paying its respects to an important visitor,'' Bloomberg quoted Hideki Hayashi, a currency strategist in Tokyo at Shinko Securities Co. as saying. "The authorities want to display a policy that has and will allow for a continued gradual appreciation."

The effect of changes to exchange-rate policy "will be felt over time," the central bank Governor Zhou Xiaochuan said in Singapore on Tuesday in an address to the International Monetary Fund.

Earlier, he told reporters in Singapore that China's currency reform must be kept in a "gradual, effective and controllable" manner.

US lawmakers have blamed a weak yuan for an influx of Chinese imports, leading to a record US$201.6 billion trade deficit in 2005, and manufacturing job losses.Beijing scholars have countered that inexpensive Chinese goods have helped improve the living quality of ordinary American households, keep down inflationary pressure, and contribute to American economic boom.

However, US Senators Charles Schumer and Lindsey Graham are requesting a vote in the Senate before the end of this month on a bill to slap a 27.5 percent punitive tariff on Chinese imports.

Paulson has said the yuan's value is a "symbol of unfair competition" and a stronger currency is in the best interest of China because it would help cool export-driven economic growth.

"Paulson is taking a 'softly softly' approach," said Richard Yetsenga, a currency strategist at HSBC Holdings Plc in Hong Kong. "Some people think it's going to bring more success on the currency front, but the number one lesson we've seen from China is it's going to move at a speed it's comfortable with -- and that's slowly."

Policy makers from the Group of Seven nations who met in Singapore over the weekend said greater currency flexibility is "desirable in emerging economies with large current-account surpluses, especially China." The group dropped a call for currency appreciation.

"It's a story of evolution not revolution," Steve Rowles, a currency strategist at CFC Seymour Ltd., said in Hong Kong. "China's not going to do very much on its currency."

The yuan may strengthen to 7.85 by the end of year, Bloomberg quoted him as saying.