Yuan Expected to Rise This Year

February 12, 2011 4:01 am Last Updated: February 12, 2011 11:22 pm

The Chinese yuan, appreciating since the beginning of 2011, is predicted to increase by three to six percent against the dollar in the course of this year. By Jan. 28, the median price had risen 0.45 percent against the U.S. dollar.

According to Beijing Youth Daily, the speed of the yuan’s appreciation against the dollar is picking up: the median price on the last day of 2010 was 1 dollar to 6.2227 Yuan. On Jan. 28 the exchange rate was 6.5930, showing a 0.45 percent increase since the last day of 2010. Compared with the same day’s result on 2010, the appreciation is 3.55 percent.

Many believe that the Chinese regime had to raise the value of yuan to counteract inflation in China. The weak foreign exchange index of the U.S. dollar in the global market on the one hand and the economic pressure on China from the western countries on the other, have pushed the yuan’s exchange rate to this level.

The latest report from JP Morgan indicates that the valuation of the yuan will still be part of China’s currency policy. The report estimates the dollar to yuan exchange rate to be within 6.3 by the end of this year. Since the inflation in China remains high, the rate of appreciation may speed up, possibly in the next few months.

Ma Jun, Chief Economist of Deutsche Bank for greater China, says the appreciation should be maintained at 5 percent each year to be able to cope with inflation.

UBS Securities believes that despite the pressure from international politics and speculation, China is still reluctant to let the yuan appreciate at a faster rate. However, it predicts that, by next year, China might allow the yuan to have an apparent appreciation in order to reduce international pressure, to secure itself against trade related threats, and to curb domestic inflation.

From the Foreign Exchange Reform in 2005 up to November 2010, the yuan has appreciated 23.97 percent against the US dollar and 14 percent against the Euro. Based on information from the Bank for International Settlements, the nominal exchange rate of yuan has effectively increased to 13.58 percent and the real exchange rate has increased to 21.20 percent effectively.

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