The yuan reached its strongest since China ended a dollar peg last year after the French trade minister said there has to be an adjustment in the currency to reflect economic factors.
China''s trade surplus reached an all-time high in June amid the fastest economic growth in a decade. U.S. Treasury Secretary Henry Paulson will likely press China for greater yuan gains to offset trade imbalances on a visit this month. The government has said it plans measures to boost imports and curb exports to reduce its surplus.
The yuan rose 0.09 percent to 7.9460 against the dollar as of 11:40 a.m. in Shanghai, the highest since China abandoned the peg on July 21, 2005, according to data compiled by Bloomberg. It may rise 5 percent in a year, Prim said.
A stronger yuan lowers the cost of imports and makes exports more expensive. China''s officials such as Tang Xu, a research director at the central bank, have said China needs a stronger currency to stall inflation. The yuan is a denomination of China''s currency-the Renminbi.
China''s surplus with the U.S. was a record $201.6 billion last year.
China was still to allow "a substantial appreciation of the renminbi, a step that many analysts argue would be the most effective way to address the imbalances in the economy," Federal Reserve Chairman Ben S. Bernanke wrote in an Aug. 30 letter to Senator Richard Shelby of Alabama, the Republican chairman of the Senate banking committee, Reuters reported on September 2.
The People''s Bank of China on Aug. 9 said the exchange-rate policy is helping to "balance" the economy. Gross domestic product rose 11.3 percent in the second quarter, the quickest since 1995.
The yuan''s reform since the end of the peg has shown that it has met the economic needs of the nation and the world, China''s central bank Vice Governor Xiang Junbo said on September 1.
"We''re getting into a period where there are a number of critical events and clearly traders'' expectations are going to be rising, that if anything''s going to happen, it''s going to happen in the coming sessions," said Robert Rennie, chief currency strategist at Westpac Banking Corp in Sydney. -China Daily