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Reports on China issued by Samsung Economic Research Institute

Outlook on the Yuan-dollar Exchange Rate

Outlook on the Yuan-dollar Exchange Rate

May 1, 2006

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The Chinese Yuan has kept appreciating since the exchange rate reform of July 21, 2005. According to the People's Bank of China, the Yuan has appreciated 3.09% against the US dollar by the end of March 2006, including the initial appreciation of 2% last July. By March 31, the exchange rate had reached Yuan 8.0170 to US$1, a historical high since the July 21 switch from the dollar pegging system to a multi-cur-rency basket regime. The Yuan's appreciation has accelerated starting from this year. On January 5, 2006, the rate surpassed 8.07; on February 6, it surpassed 8.06; on February 13, It surpassed 8.05 - In about A month, the Yuan had appreciated 230 basis points. Some experts attributed this fast appreciation to the inter-bank OTC (Over-The-Counter) system on the spot market by the central bank, because the market participants gained more flexibility and the market power played more active role in the process. Besides the acceleration, the exchange rate of Yuan against the US dollar showed a high volatility since January.

The writer is a researcher at Department of Macroeconomics of Samsung Economic Research Institute's Beijing Representative Office. For more information, please visit www.serichina.org.

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