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Experts: No basis for sharp yuan appreciation

By Luo Lan (People's Daily Overseas Edition)

08:52, May 08, 2012

Edited and translated by People's Daily Online

In spite of hitting new highs consecutively, the effective exchange rate of the yuan remains stable.

Since the central bank of China increased the transaction value of the yuan against the U.S. dollar on April 16, the yuan exchange rate has remained active in a larger range and has reached a new high for two times. Especially on May 2, it hit a new high in the third consecutive trading day since the yuan exchange rate reform in 2005.

To the upward trend of yuan exchange rate, experts said that the sharp appreciation of the yuan will not appear at present and may slow down in the future. It shows a two-way fluctuating trend.

Fluctuation increases but still remains stable overall

The fluctuation of yuan exchange rate is related with China's exchange rate system. Zhao Qingming, an expert of international finance, said in an interview with People's Daily that the yuan exchange rate system currently is a managed floating exchange rate system based on market supply and demand and a basket of currencies. The U.S. dollar is an important index reference. If the U.S. dollar devaluates, the yuan will appreciate. The U.S. dollar fell on Monday and Tuesday and the yuan against the U.S. dollar rose on May 2.

Although the fluctuation of yuan exchange rate increased, it did not affect its stability. Zhao said that, in these days, intraday trading price relative to the opening price fell in most cases. This is because people commonly think that the yuan will not appreciate recently. The yuan devaluation was expected since the fourth quarter of 2011. In the beginning of 2012, the expectation for yuan devaluation decreased because the funds outstanding for exchange reserves changed from negative to positive. Many experts and banks think that the yuan will not appreciate but should remain stable or devalue in order to support export enterprises. The view will be reflected in foreign exchange transactions and lead to the drop of the intraday trading price relative to opening price. Eventually, the yuan exchange rate will not change too much.

Liu Yuhui, director of the Financial Laboratory of Chinese Academy of Social Sciences, said that although average exchange rate of the yuan against the U.S. dollar hit new highs consecutively, the effective exchange rate of the yuan remains relatively stable.

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