Yuan Rises To Record High of 6.5/dollar, Indian Companies To Gain.

The currency markets and possibly the Chinese government heard the prayers of players in the international trading arena, including India, when the yuan climbed up to the magic level of 6.5 per dollar after a span of 17 years. A stronger yuan will make it easier for foreign companies to compete in the Chinese market, while making life difficult for Chinese exporters, who are dominating several markets including India.

For Chinese government, it is a tool to fight against rising inflation. The Communist leadership will do anything to curb inflation which has triggered signs of social unrest .

The Chinese currency gained 45 basis points to a record high of 6.5051 per dollar on Thursday and finally ended at 6.4910 after closing on Friday. The Peoples Bank of China, the central bank, played a major role in calibrating the rise of yuan to the level it is comfortable with, while pumping in $37 billion over the last five days, sources said.

The upward valuation of the yuan could be music to the ears of the Reserve Bank of India, which complained in early April that the Chinese government is giving a competitive advantage to its exporters at the cost of its trade partners including India by keeping its currency undervalued.

The exchange changed from Rs 5.5 for a Yuan in 2001-02 to the present level of Rs 6.8. The devalued yuan is one of the factors that helped China increase its trade surplus over India from $11 billion in 2008 to $20 billion in 2010. The Chinese government's hand in the latest revaluation is also evident in the fact that the Yuan has gone through its seventh straight weekly gain, its longest rising streak since July 2008.

In April, the Yuan rose 0.9% against the dollar, which is roughly equivalent to its entire gain in the first quarter of 2011.

With the latest rise, the yuan has gained a total of 27.5% since 2005 when the country embarked on the process of gradual reform in the local currency. Inflation hit a 32-month high of 5.4% in March resulting in social unrest , including a week-long strike by 2000 truck operators engaged at the Shanghai port, the country's busiest port.

The strike forced the government to accept some of the demands like reduction in fees charged from tuckers.

Source : economictimes.indiatimes.com