On November 25, purchase price of USD cash in Bank of China was quoted at 7.9997 RMB yuan. It was the first time that the USD buying rate hits below 8 yuan and the RMB exchange rate reached the highest points in the last 11 years, reports the Global Times on November 28.

Zhou Maoqing, research fellow at the Finance Institute of Chinese Academy of Social Sciences, believed RMB exchange rate hike can be attributed to several reasons. Firstly, China's foreign exchange reserves grow vigorously to reach $800-odd billion and are expected to hit $1 trillion by the yearend. Secondly, China's trade surplus keeps growing in recent years, exacerbating trade friction with other countries and the pressure on RMB appreciation. Therefore RMB appreciation is seen as the general trend.

Financial expert Tan Yaling said to the Global Times the USD-RMB exchange rate fall has something to do with the People's Bank of China conducting swap transactions with commercial banks in the foreign exchange market. According to experts, the term of the swap transaction is one year with planned volume of $5 billion and set price of 1 to 7.85.

In overseas markets central banks' currency swap transaction is an open market business. Both the German central bank and Swiss central bank resorted to currency swap transactions to relieve pressure on appreciation.

Tan Yaling said currency swap transaction and the implementation of the market maker system show that the Chinese government is gradually expanding the floating band of RMB exchange rate through marketing and productization of the RMB so as to reflect its market value and rationality. Under these circumstances commercial banks' quotation for USD-RMB buying rate more accurately reflects the market's demand for the RMB. The lower the quotation is the more demand is indicated for the RMB in the market.

It is also learned that the US Federal Reserves' announcement of a meeting minutes also contributed to the RMB appreciation, which predicted the US economy is probably approaching the end of a deflation cycle.

Zhou Maoqing said, in the long run the RMB would continue to appreciate but in a mild manner because radical appreciation would not only press hard on businesses but also has negative impact on the economy. A report on currency policy released by the central bank says as the RMB exchange rate stays basically stable and floats normally at a rational and equilibrium level RMB appreciation is expected to show preliminary sign of weakening.

By People's Daily Online