Tony Liaw and agencies Thursday, January 13, 2011
The twin moves are expected to bring some relief to China, which is under heavy Western pressure to liberalize its currency.
Spot yuan closed at 6.6038 versus the greenback yesterday, up from 6.6200 on Tuesday.
The central parity rate of the Chinese currency was set at 6.6128, down from Tuesday's 6.6216. The yuan can trade 0.5 percent higher or lower from this parity rate each session.
However, US Treasury Secretary Timothy Geithner said the yuan remains "substantially undervalued" and Beijing is moving too slowly to fulfill a promise made in June to reform its currency practices.
Bank of China (3988), on the other hand, said its Madison Avenue branch in New York has begun offering yuan- denominated accounts, signaling that Beijing may allow similar accounts to be opened in other global financial centers this year.
But traders said the impact of the BOC move is minimal. "The adjustment for the mid-point reflected China's attitude," said a local currency trader, who expects the yuan to rise above 6.60 before Hu ends his US visit, which begins on Tuesday.
Hu will meet President Barack Obama at the White House on Wednesday, then fly to Chica
This means China would fall back more on the exchange mechanism to fight inflation, according to one currency trader, who did not want to be identified.
As an offshore yuan center, Hong Kong plays a key role in yuan globalization, according to Secretary for Financial Services and the Treasury Ceajer Chan Ka-keung. It is capable of clearing yuan transactions as the deposit pool topped 280 billion yuan (HK$329.49 billion) as of November. "There is only one clearing bank each for US dollars and euros [in Hong Kong]," Chan said in the Legislative Council.
"Likewise, having one clearing bank for yuan is basically the same arrangement."
While Hong Kong is technically ready for yuan-denominated stock trading, Chan said it is up to companies to decide to take the initiative. He reiterated there is no timetable yet for the mini-QFII, a mechanism for offshore yuan to return to mainland stock markets through local brokers or fund houses.
Although the yuan's popularity is growing, Chan said it is not the right time to drop the Hong Kong dollar peg with the US dollar.
"There is no proof the peg boosts inflation," Chan said. A 10 percent appreciation of the yuan would only raise prices in Hong Kong by 0.5 percent.
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