Economist: China has "limited scope" for yuan depreciation against dollar

Special Report:Global Financial

Crisis
　
by Li Baojie

BEIJING, Dec. 3 (Chinese media) -- China has "very limited

scope" to keep its currency, the yuan, depreciating against the U.S. dollar in

the coming year, UBS Securities said on Wednesday.

The yuan, or Renminbi (RMB), weakened to 6.8870

against the U.S. dollar on the over-the-counter market on Tuesday, declining by

the 0.5 percent daily limit for a second day. The RMB is allowed to trade by up

to 0.5 percent against the greenback on either side of its central parity rate.

This has sparked speculation that China was shifting

its policy on the exchange rate to allow the yuan's depreciation to help out its

struggling exporters to avert economic slump and save jobs.

"We think it is too early to see the latest move as a

signal of a significant change in China's exchange rate policy," Tao Wang, Head

of China Economic Research at UBS Securities, wrote in a research note.

The central parity rate of the RMB was set at 6.8502

to the dollar, compared to 6.8527 on Tuesday and reversing from weakening in the

reference rate for four days.

As the United States, European Union, and Japan fall

deeper into recession, the yuan's depreciation would "likely invite criticism

that China is adopting a beggar-thy-neighbor type of policy, leading to possible

protectionist responses from China's major export markets", Wang said.

"Its depreciation could also lead to a round of

competitive devaluation in neighboring economies, which would result in little

material gains for China," she stated.

The economist forecasted the exchange rate of the

yuan to the U.S. dollar would move toward 7.0 by the end of 2008, but it could

advance to 6.8 at the end of 2009 unless the dollar strengths by more than 10

percent against the currencies in China's main trading partners.

The yuan had for months remained steady against the

dollar until the recent retreat. But it has appreciated by about 10 percent

against the trade-weighted basket of currencies since August, as the dollar

strengthened significantly in recent months against other major currencies, said

Wang.

The appreciation of the effective exchange rate over

the last four months is as large as the appreciation of the previous four years

when the yuan appreciated steadily against a weakening dollar.

She added that yuan appreciation is likely to hurt

the already bleak export prospect in China next year.


China's yuan strengthens after largest

one-day fall against

greenback

BEIJING,

Dec. 3 (Chinese media) -- China's currency, the yuan, strengthened against the U.S.

dollar on Wednesday. This came just days after it fell to its lowest value since

its peg to the dollar ended in July 2005. Full story