China's central bank set the strongest yuan exchange rate in years today, as international pressure builds for a stronger currency ahead of the weekend Group of 20 summit in Canada.
The People's Bank of China said it set the central parity rate - the centre point of the currency's allowed trading band - at 6.7896 to the dollar, 0.3 percentage points stronger than yesterday's 6.8100.
That marks the strongest level since China freed the currency from an 11-year-old peg in July 2005 and moved to a tightly managed floating exchange rate.
China has tweaked the rate up and down this week ahead of the G20 summit and has a history of letting the yuan strengthen slightly before sensitive events, apparently to defuse criticism that it keeps the currency too low.
Policymakers pledged last weekend to let the yuan trade more freely against the dollar but ruled out dramatic moves in the currency or a one-off appreciation.
In a vaguely worded statement, the central bank said the yuan would remain 'basically stable' - official code for keeping the currency on a tight leash.
The action was widely seen as a bid to head off rancor at the G20 meeting following intense pressure on Beijing to embrace currency reform as part of efforts to enhance a global economic recovery.
The currency has been hovering around 6.8 in recent days, with traders reporting Chinese state-owned banks were buying the dollar, thereby weakening the yuan. They said it was an apparent attempt by authorities to show its critics that currency flexibility could cut both ways.
China had effectively pegged the yuan at about 6.8 to the dollar for the past two years to prop up exporters during the global financial crisis. Critics say the policy gives Chinese producers an unfair advantage.
