Yuan surges, moves world
China’s yuan surged on Monday by the most of any day since its landmark revaluation in 2005, sending a clear signal ahead of this weekend’s G20 summit that Beijing is keeping to its word and allowing greater currency flexibility.business Updated: Jun 21, 2010 22:43 IST
China’s yuan surged on Monday by the most of any day since its landmark revaluation in 2005, sending a clear signal ahead of this weekend’s G20 summit that Beijing is keeping to its word and allowing greater currency flexibility.
The central bank has maintained a de facto peg since the middle of 2008, a controversial policy aimed at steadying the world’s fastest-growing economy during the global downturn.
But the People’s Bank of China (PBOC), the central bank, stepped aside on Monday to back up its surprise weekend announcement that it would allow more flexibility for the yuan, buying some time against critics who argue the currency is undervalued and gives China an unfair advantage in trade.
After setting the mid-point for the day’s trading range, the central bank let the currency rise 0.42 per cent to 6.7976 per dollar — both the biggest daily gain and the highest close since China revalued the currency and introduced a managed float regime in 2005.
At one point, the yuan was up as much as 0.47 per cent from the day’s mid-point -— just shy of the currency’s 0.5 per cent limit, which had rarely been tested in practice in the past.
Global markets, for their part, were not so circumspect.
Asian currencies and stocks rose and US Treasuries fell on expectations that China’s promise to give the currency new room to move would ease political tensions with the West and encourage investors to snap up riskier assets.
Commodities and oil also surged, as a stronger currency would give the world’s third-biggest economy more purchasing power to buy foreign goods, which would be positive for world trade, especially for commodity exporters such as Australia, Brazil, Canada and New Zealand.
Crude rose more than 1 per cent, while copper and zinc traded in Shanghai both rose by their daily limits.