China's currency, the yuan, was set to trade at 6.9920 yuan against the U.S. dollar on Thursday, breaching the 7-yuan mark for the first time since the government unpegged it from the dollar in 2005.
Following an overnight fall of the dollar, the central parity rate of the yuan, or Renminbi (RMB), gained 105 basis points to 6.9920 yuan against the dollar on Thursday, according to the China Foreign Exchange Trading System.
Shen Minggao, an economist at Citigroup in Beijing, said that like many economists, he was not surprised to see the yuan to break the 7-yuan mark.
"It was quite natural," he said, citing the dollar's fall against other major currencies, especially the euro, since the second half of last year along with an unfolding U.S. credit crisis plaguing the U.S. economy.
The yuan has gained 4.47 percent this year based on Thursday's trading price, or 15.99 percent since the new currency regime was imposed in July 2005.
The yuan's gain amounted to 18.27 percent from 8.2765 yuan against the dollar before the new currency regime was adopted.
Zhuang Jian, a senior economist with the Asian Development Bankmission in China, also believed a weaker U.S. dollar was the most direct factor behind the accelerated appreciation of the yuan.
The value of Chinese currency stayed above eight to the dollar for many years before the 2005 regime reform. The yuan broke the 8-yuan threshold on May 15, 2006.
Zhuang said the breakthrough was an indication of the country's efforts to shift from a heavy reliance on exports and investment as well as to go after a more balanced trade structure.