China: Chinese yuan strengthens
August 16, 2011
The yuan continues to rise. On 19 August, the Chinese yuan (RMB or CNY) traded at 6.38 per USD, which represented a strong 1.3% gain compared with the previous month. The upward trend has been gaining rapid momentum in recent days, marking the fastest appreciation pace since the RMB was unpegged from the USD in June 2010. On a year-on-year basis, the RMB appreciated a nominal 6.1% against the USD. As a result, the RMB is currently trading at levels not seen since the country unified official and market exchange rates in 1993. Analysts believe that monetary authorities are using the RMB appreciation as a tool to stem rising inflation via lower import prices. Given that exports remain strong and the trade surplus continues rising, authorities are less concerned about the detrimental impact of the appreciation on the country's competitiveness than about the persistent rise in inflation. However, a strong RMB does not imply that the yuan is appreciating against other currencies. In part, the RMB strength simply reflects a weaker U.S. dollar. Meanwhile, on 17 August, the Vice Premier Li Keqiang announced several measures aimed at making the so-called offshore RMB traded in Hong Kong flow back to the mainland, implying another step towards the Chinese currency's full internationalization. These measures will allow Hong Kong companies to buy securities and invest directly in mainland China. In addition, on the same day, China issued RMB 20 billion (USD 3.1 billion) RMB-denominated Dim Sum bonds in Hong Kong for the third consecutive year at record low yields, which reflected the investors' appetite for yuan-denominated assets, partially due to expectations of RMB appreciation.