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China's yuan breaks through 7.000 to the dollar
2008-04-09
China's central bank on Thursday set the yuan at 6.992 against the dollar, the first time the currency has broken through 7.000 since a peg with the US unit was scrapped nearly three years ago. Thursday's value of 6.992, posted on the central bank's website, means the yuan has now risen about 18 percent against the dollar since July 2005, when it was cut loose from a peg to the greenback. The speed has picked up recently, with the Chinese currency gaining about four percent against the dollar since the beginning of this year, following sustained US-led foreign pressure for the yuan to appreciate sharply. "It will have a certain psychological impact, but it won't come as a big shock," Zhang Xinfa, an economist with Galaxy Securities, said of the yuan breaking through 7.000. "The yuan appreciation has accelerated this year, and it was just a matter of time." The United States has said for many years that the yuan was undervalued, giving Chinese exporters an unfair advantage and contributing to a massive trade imbalance between the two nations. US Treasury chief Henry Paulson was in China last week, and told President Hu Jintao that he considered the recent appreciation of the yuan to be "very material progress," but still not what he wanted, a market-driven currency. However a stronger currency is not popular among China's exporters, many of which have come under intense pressure as they have lost competitiveness in recent months. "It's negative for small and medium-sized exporters, like factory owners who worry about higher operating costs and lower profits," said Sun Lijian, an economist at Shanghai's Fudan University. China revalued the currency by 2.1 percent from 8.28 yuan in July 2005, and has since then allowed the unit to rise about 16 percent.
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