Oct 31, 2012
Translated by Ji Menghui

The value of the RMB or Chinese Yuan has appreciated by 1.75 percent since the start of September, outpacing the 0.86 percent pace of growth over the first 8 months of this year.

For five of the past six trading days, the value of the Chinese currency has reached the upper limit of its one percent trading band and traders were confused yesterday when an apparent technical error allowed the currency to momentarily actually break the 1 percent limit.

On Thursday, the People's Bank of China set the yuan's central parity rate at 6.3017 per dollar but immediately rose to 6.2387 when trading began, according to data from China Foreign Exchange Trade System (中国外汇交易中心). The currency is allowed to trade up to 1 percent on either side of the daily rate set by the central bank.

However, according to experts quoted in Tuesday's Securities Daily, the recent appreciation of the yuan in relation to the U.S. dollar will not lead to more "hot money" flooding into the country.

Analysts have attributed the strengthening RMB to the introduction of a third round of quantitative easing in the U.S. and loose monetary policy in other developed countries. 

However, they also maintain that Mainland China is not facing an imminent large increase in "hot money" inflows. 

Analysts say that the RMB will not appreciate against the U.S. dollar over the long-term, but still warn policymakers to be wary of imported inflation pressure. 

The central bank must take measures to cope with increased liquidity as more money begins to flow into the country, by either neutralizing the effect or managing the flow to a controllable level.

Zuo Xiaolei (左小蕾), chief economist with China Galaxy Securities, noted that the continuous rise in the value of the RMB against the dollar was due to monetary easing across the world and speculative behavior. 

She also said that the quantitative easing being undertaken in both the USA and Europe would cause excessive liquidity in money markets and that the depreciation of the dollar is what is causing the relative appreciation of other currencies. 

Zhao Qingming (赵庆明), an international finance expert, believes that the international markets have begun to take a bearish view on the dollar due to this third round of quantitative easing, while Asia, and especially Hong Kong, is beginning to attract international short-term capital. 

Chinese experts quoted in the article believe that the heightened value of the RMB against the U.S. dollar will not last for long. 

Economists at China International Capital Corporation (CICC), a Chinese investment bank, also noted that there is little room for the RMB to constantly appreciate against the dollar. 

Yi Gang (易纲), the Deputy Governor of People's Bank of China, said China will continue to promote the reform of the RMB exchange rate policy to maintain the stability of the exchange rate.

Links and Sources
Securities Daily: 人民币兑美元升破6.3 中国内地未现热钱涌入
The Beijing News: 人民币交易价两月升值1.75%