Yuan will continue gradual ascent: currency watchers

Hong Kong

TEN years after China scrapped a yuan peg against the dollar, the central bank is again anchoring the exchange rate to the greenback. Witnesses to the 2005 float say too much has changed for that to last.

The economy is now five times bigger, having overtaken Japan and Germany, and the yuan has risen to become the world's second most-used currency for trade finance. Currency watchers of the time, including UK government official Jim O'Neill and ski gear entrepreneur Benedikt Germanier, say the yuan will sustain its gradual ascent. While it has appreciated 34 per cent since the 8.3 per dollar peg ended, it's in the fifth month of a pause at 6.2.

"Ten years on, what is clear is that China is moving toward a much more flexible exchange-rate system and is making good progress," said Mr O'Neill, a former Goldman Sachs Asset Management chairman who is now commercial secretary to the UK Treasury. The economist, who remembered being flooded with calls during a family holiday in Greece in July 2005, said the yuan "will play an increasing role in the global financial system". China has been preventing declines in the yuan partly to strengthen its bid to win International Monetary Fund reserve status this year and challenge the dollar for domination of global trade. A successful bid could trigger a US$1 trillion switch of global reserves into Chinese a…