BEIJING, Nov. 23 (Xinhua) -- China's currency, the yuan, Friday hit a new high against the U.S. dollar for the second consecutive day, smashing the 7.4-yuan mark, according to the Chinese Foreign Exchange Trading System.
The central parity rate of the yuan, also known as Renminbi (RMB), stood at 7.3992 yuan to one U.S. dollar on Friday, gaining 127 basis points from Thursday's reference rate of 7.4119.
It is the 73rd time since the beginning of this year that RMB reached a new high against the U.S. dollar. It climbed 4,095 basis points, or more than 5.35 percent, from 7.8087 yuan to one U.S. dollar posted on the last trading day of 2006.
The accumulative appreciation since July 21, 2005, when China discontinued the yuan's peg to the greenback, has been around 9.4 percent.
"The fact that the central parity rate broke the 7.4 mark was simply a normal phenomenon, which was caused mainly by the depreciation of the U.S. dollar, "Yi Xianrong, a financial researcher with the Chinese Academy of Social Sciences (CASS), told Xinhua.
Market observers said the persistent downward trend of the greenback stemmed from the crisis in subprime housing mortgages and from other lacklustre economic data from the United States.
"A healthy macro economic situation and stable domestic financial regime in China will remain alluring for foreign investors. This will be the long-term factor behind the yuan's appreciation," said Peng Xingyun, another financial researcher with CASS.
"Adjustment of RMB's foreign exchange rate will not only help increase China's imports and ease inflationary pressure at home, but will also help offset the excess liquidity and regulate the national economy in a better way through integrated forces of forex and interest rates leverages," Peng noted.
Peng's words can be seen as an echo of opinions stated in the central bank's report on the implementation of monetary policy in the third quarter.
The report said it is imperative to enhance regulation over the liquidity of the banking sector through combined efforts in open market operation, reserve requirement control and issuance of special bonds as well as in use of forex and interest rate leverages.
China's central bank has raised commercial banks' reserve requirement ratio nine times and interest rates five times this year.
According to the Chinese Foreign Exchange Trading System, the RMB's central parity rate against the U.S. dollar broke the 8.0 mark on May 15,2006, the 7.9 mark on Sept. 28, 2006, the 7.8 mark on Jan.11, 2007, the 7.7 mark on May 8, the 7.6 mark on July 3, and the 7.5 mark on Oct. 24.
Statistics from the central bank's monetary analysis team show that in the 182 tradings days of the first three quarters, 108 witnessed RMB appreciate and 74 saw it depreciate.
On Nov. 19, Premier Wen Jiabao said at the National University of Singapore that China would continue to improve the RMB-forex-rate forming mechanism, make the forex rate more flexible and realize RMB's convertability under capital accounts in accordance with the principles of initative, progressiveness and control ability.
Last Sunday, China's central bank governor Zhou Xiaochuan said if necessary, the nation will consider widening the yuan's trading band.
But any change in the yuan's floating band will depend on the global economic situation and it's not the only tool the country would use to make its currency more flexible, Zhou said at the Group of 20 meeting in Cape Town, South Africa.
China widened the yuan's daily trading band against the U.S. dollar from plus or minus 0.3 percent to 0.5 percent in May.
However, market observers said some commercial banks are ordered by the central bank to hand in reserve requirements in foreign currencies next week, which will translate into demand for the U.S. dollar. This will in some measure help slow down RMB's appreciation against the greenback in the coming few days.
On Friday, the yuan also gained ground against the euro, the British pound and the Japanese yen.