With Senate Vote Looming, China Strengthens its Currency

Beijing typically allows the yuan to strengthen against the greenback prior to key events involving its major trade partners to deflect criticism from its controversial exchange-rate policy.

China's yuan hit its strongest level against the dollar in more than a year on Tuesday as U.S. lawmakers prepare to vote on a bill aimed at punishing Beijing for alleged currency manipulation.

Beijing typically allows the yuan to strengthen against the greenback ahead of key events involving its major trade partners to deflect criticism from its controversial exchange-rate policy.

The Senate is expected to vote on the proposal, which calls for retaliatory duties on Chinese exports if the yuan's value is unfairly "misaligned," later Tuesday.

China's central bank set the yuan central parity rate -- the midpoint of the currency's allowed trading band -- at 6.3483 to the dollar on Tuesday, compared with 6.3586 on Monday.

It was the strongest rate since Beijing pledged in June 2010 to allow the unit to trade more freely against the greenback, Dow Jones Newswires said.

The yuan is allowed to trade 0.5% on either side of the central parity rate.

Beijing has let the yuan strengthen more than 7% against the dollar since last year's promise as it struggles to rein in stubbornly high inflation. A stronger currency makes Chinese imports cheaper.

But lawmakers of both major U.S. parties continue to charge that China keeps the yuan unfairly cheap against the dollar, giving its goods as much as a 30% edge over comparable U.S. products.

China has repeatedly expressed its "firm opposition" to the currency bill and Vice Foreign Minister Cui Tiankai has warned of a trade war if the proposal is passed into law.

"It would be detrimental to the development of economic ties and might have an adverse impact on bilateral relations," Cui was quoted by the China Daily as saying Tuesday.

Even if it clears the Senate, the bill still faces an uncertain future in the House of Representatives, where Republican Speaker John Boehner, who has voiced his own concerns over it, has signaled the legislation will die.

President Obama has expressed concern that the bill could violate World Trade Organization rules, but he has been highly critical of China's currency policies.

Copyright Agence France-Presse, 2011


TAGS: Trade
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