To many investors' surprise, the Chinese yuan's official exchange rate has weakened significantly in recent days. The China Securities Journal attributes the halt in the yuan's appreciation pace to the huge market demand for U.S. dollars.

According to the middle price announced by the China Foreign Exchange Trading System on Wednesday and Thursday, one dollar was equal to 8.0230 yuan and 8.0268 yuan respectively, rising 54 basis points and 38 basis points from the previous trading day.

In recent days, major state-owned commercial banks including the Construction Bank of China and Industrial and Commercial Bank of China were busy buying U.S. dollars because some of their important clients badly need foreign currency to purchase oil in the international market, the newspaper said.

The drop in the international oil price provides Chinese petroleum giants a good chance to stock crude oil, it said.

The central bank, aiming to build a more flexible exchange rate system, may also intentionally expand the fluctuation range of the yuan against the U.S. dollar to test the market endurance, according to the newspaper.

China raised the value of yuan by 2 percent to 8.11 per U.S. dollar and started linking it to a basket of currencies on July 21, 2005, scrapping the yuan's decade-long peg to the dollar. The yuan has since risen by more than 3 percent.

But the United States said the rise was too small to make a big dent in its huge trade deficits with China.

Source: Xinhua