Bank of Tokyo sees faster advance of China's yuan


By Min Zeng
Bloomberg News Service
Monday, September 25, 2006

China will allow the yuan to rise more than 5 percent against the dollar over the next 12 months to help cool its economy, according to Bank of Tokyo-Mitsubishi UFJ Ltd.

The yuan, which last week reached the strongest since China ended a peg to the dollar in July 2005, will appreciate to at least 7.50 per dollar within a year, said Paul Chertkow, London- based head of global currency research at Bank of Tokyo- Mitsubishi, in a research note on Sept. 22.

"The Chinese will continue to appreciate their currency at a faster pace," Chertkow said in a phone interview on Sept. 22. "It will help forestall overheating in the economy."

The yuan ended last week at 7.9195 per dollar, and touched 7.9162 on Sept. 22, the strongest since China revalued the currency on July 21, 2005. The yuan is a denomination of the Chinese currency renminbi, or people's money.

The Chinese currency has gained 0.15 percent per week this month, compared with a 0.05 percent weekly appreciation last month and 0.02 percent per week in the 27 weeks after the July 2005 revaluation, Chertkow wrote in the report.

China limits the yuan's daily fluctuation to 0.3 percent against the dollar on either side of a rate set each day by the central bank.

The currency has advanced 2.4 percent since the revaluation. At a rate of 7.5 per dollar, the yuan will have gained 7.5 percent since the revaluation, according to Chertkow.

China's economy grew 11.3 percent last quarter from a year earlier. The country's trade surplus reached a record $18.8 billion in August. The nation's central bank has raised borrowing costs twice this year.

China should allow the yuan to gain 5 percent a year against the dollar to slow exports, said Zhu Baoliang, deputy director of the economic forecast department at the State Information Center, said in an interview last week. The Center is affiliated with the National Development and Reform Commission, China's top planning body.

Senator Charles Schumer, a New York Democrat, said last week he is likely to push for a vote on his measure to impose tariffs on Chinese goods. Schumer said he has no wish to see the measure, which would apply tariffs of 27.5 percent on Chinese imports unless China significantly revalues its currency, take effect.

The U.S. trade deficit with China rose to a record $201.6 billion last year.

After meetings with Chinese leaders last week, U.S. Treasury Secretary Henry Paulson said the U.S. and China agree on the need for a more flexible yuan, while disagreeing on when to implement the changes.

"Greater exchange rate flexibility is desirable in emerging economies with large current account surpluses, especially China," the Group of Seven industrialized nations said in a statement after meeting in Singapore earlier this month.

The group dropped a call for currency appreciation, made in April.

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