12:13<\/span><\/span><\/p>\nChina’s currency, the yuan, strengthened past a key level against the US dollar on Friday, as part of wider efforts to contain inflation on the mainland.<\/p>\n
The yuan broke past 6.50 against the dollar, a level not seen since 1993.<\/p>\n
Traders and currency strategists believe the move is a sign that China’s central bank is prepared to allow the currency to appreciate further.<\/p>\n
A stronger currency means imported products become cheaper in China.<\/p>\n
“The market is very excited,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB.<\/p>\n
“Clearly, the People’s Bank of China is pushing for a stronger pace of appreciation.”<\/p>\n
China’s central bank actively guides the level of the yuan, by effectively setting the rate at which it is allowed to trade.<\/p>\n
Mr Kowalczyk said the yuan had gained by 0.9% against the dollar so far in April, roughly equivalent to its entire gain in the first three months of 2011.<\/p>\n
Gradual appreciation<\/span><\/p>\nFriday’s gains mean the yuan has strengthened by 27.5% since 2005, when Beijing revalued the currency, effectively ending its peg against the US dollar.<\/p>\n
That policy of gradual appreciation was temporarily frozen in the aftermath of the financial crisis in 2008.<\/p>\n
Now, the spectre of rising prices in China has prompted its leaders to speed up the pace of appreciation, according to analysts.<\/p>\n
“High inflation means you need to do more than just raise interest rates,” said Thio Chin Loo, a Singapore-based currency strategist at BNP Paribas.<\/p>\n
“This just compounds the kind of dollar selling we’ve been seeing.”<\/p>\n
China imports a great deal of food and fuel.<\/p>\n
A more valuable currency would help reduce those costs, making daily essentials more affordable for the country’s 1.3 billion people.<\/p>\n
Inflation is a growing social and political problem in China. It hit a high of 5.4% in March.<\/p>\n
Mr Kowalczyk believes that if the yuan continues to appreciate at the current rate, it may gain as much as 10% by the year end.<\/p>\n<\/div>\n
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