September 27, 2023

Chinese Currency Rises Above Key Level

HONG KONG — The Chinese currency hit a milestone Friday by rising beyond a level closely watched by analysts — the strongest since Beijing began allowing the currency, the renminbi, to rise in 2005 and a sign that the authorities might be using the appreciation as a weapon against inflation.

The dollar fell below 6.50 renminbi to about 6.491. That marks a 5 percent gain for the renminbi since last June, when it traded around 6.827.

The rise in the Chinese currency engineered by Beijing has gone in fits and starts. In 2005, the authorities allowed the renminbi to strengthen modestly after longstanding accusations by governments around the world that China was keeping its currency artificially weak to increase its exports. But in 2008, Beijing took a long pause, once again holding the renminbi steady to steer its giant economy through the global financial crisis. In June, the rise resumed.

The gains since then are small compared with the sharp upward moves staged by the currencies of many other emerging economies. Economic growth and interest rates well above those seen in developed economies have prompted large flows of cash into many emerging nations, pushing currencies like the Malaysian ringgit, the Mexican peso, the Brazilian real and the South African rand sharply higher since last year.

The renminbi’s strength comes amid a backdrop of a generally weak dollar against a large number of currencies, as investors worry about the strength of the U.S. economic recovery.

The relatively small rise in the renminbi has not been enough to end occasionally vocal criticism by some U.S. policy makers and business executives, who continue to argue that the renminbi’s valuation gives Chinese exporters an unfair advantage over their U.S. counterparts by making Chinese goods inexpensive overseas.

The move Friday past the eye-catching level of 6.50, and a climb of 0.9 percent during April, highlighted that the authorities in Beijing are serious about allowing the renminbi to strengthen — albeit at a pace that is slow enough in their eyes not to damage the Chinese export sector.

At the same time, by making it cheaper for China to import oil, iron ore and other goods, a rise in the renminbi is one way of combating inflation, which has become an increasingly worrisome and politically sensitive problem in China.

“Clearly, policy makers are increasingly using currency appreciation to combat imported inflation,” commented Dariusz Kowalczyk, an economist at Crédit Agricole in Hong Kong, wrote in a research note.

Most observers believe China will continue with a gradual appreciation rather than an all-out revaluation.

A revaluation would have meaningful disinflationary effect only if it were large enough to outweigh the sharp rises that global commodity prices have staged this year, Mr. Kowalczyk wrote. However, a gain of such magnitude “would have a devastating impact on Chinese exports and employment, a side effect too negative to be acceptable for policy makers,” he said.

Article source:

Speak Your Mind