The Chinese currency slipped Thursday against the U.S. dollar by the maximum amount allowed, the fourth day of such declines, raising questions about Beijing's commitment to a stronger yuan as U.S. and Chinese officials met to discuss a range of economic issues.The Chinese yuan was quoted at 6.8840 in mid-afternoon trading. Earlier it dipped to a low of 6.8845, falling by the maximum daily limit of 0.5 percent from its opening level of 6.8502, traders said.
China keeps the yuan trading in a relatively narrow range against the U.S. dollar. It had stayed at about 6.83 to the U.S. dollar for several months before weakening abruptly on Monday.
The shift in the yuan, also known as the "renminbi," or "people's money," came as top U.S. and Chinese officials met Thursday in Beijing to discuss economic issues, including currency policy.
Washington wants to see Beijing loosen controls and let the yuan appreciate further against the dollar. Critics of China's policies contend that they keep the yuan artificially weak, giving the country's exporters an unfair advantage by helping keep products made in China relatively cheap.
Chinese leaders say they need to keep the yuan stable to protect the developing financial system. As export growth has fallen amid the global economic crisis, Beijing has hinted it might let the yuan weaken to help protect the country's export sector -- a crucial source of jobs and tax revenues.
Like most central banks, the People's Bank of China does not comment on its market activities. But a spike in demand for dollars due to technicalities of China's foreign exchange rules and expectations that the yuan will weaken further prompted the PBOC to sell dollars to help stem the dollar shortage, traders say.
Overseas nondeliverable forwards, a key measure of expectations of the yuan's future value that does not affect actual exchange rates, are betting on a decline to about 7.3 to the U.S. dollar within a year.
The central bank sets the yuan's parity rate -- a weighted average of prices given by market makers, excluding the highest and lowest offers -- early each trading morning. Thursday's parity rate of 6.8502 quickly succumbed to market pressure as the yuan again slid against the greenback.
Analysts say some of the pressure on the yuan stems from the U.S. dollar's recent rebound against the euro and other major currencies. Since the yuan is effectively linked to the dollar, the yuan has also gained against the euro, putting heavy pressure on the country's export sector.
But opinions are divided over whether this week's market movements signal an official shift of policy toward devaluation.
"Renminbi rate: a trend or an aberration?" queried a headline Thursday in the state-run newspaper China Securities Journal.
A weaker yuan would have a mixed impact, eroding China's purchasing power for key imports such as crude oil, industrial components and other commodities but helping export-oriented sectors, such as appliance and textile manufacturers and automakers.
"It will send the signal domestically that policymakers are taking all possible steps to support growth," Standard Chartered Bank said in a research note Thursday.
China won kudos from its neighbors for refraining from devaluing the yuan during the Asian financial crisis of the late 1990s.
Before this week's abrupt decline, the yuan had risen in value by more than 20 percent against the dollar since Beijing revalued the currency in mid-2005 in its most recent overhaul of its foreign exchange system.
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