China's currency hit a 12-year high yesterday and the Asian Development Bank (ADB) indicated the renminbi (RMB) may appreciate by 3 percent this year.

 

In an unusual move ADB, an Asian policy bank supported by numerous regional members, made the forecast in its annual Asian Development Outlook journal published yesterday.

 

It based its prediction on discrepancies between the US dollar and a basket of currencies used by China to set its currency against the dollar.

 

Tang Min, chief economist with the China Mission of ADB, said the forecast represents the expectations of the currency market.

 

The exchange rate of the Chinese yuan reached a 12-year high against the US dollar, which almost made the magic number of eight yuan to one dollar. It closed at 8.0098 to the dollar yesterday.

 

The RMB chalked up its biggest ever weekly appreciation last week, up more than 3 percent since China's exchange rate reforms last July when the value of the yuan was linked to a basket of currencies rather than being pegged directly to the US dollar.

 

Last July China raised the value of the yuan by 2 percent allowing the RMB yuan to be traded at a rate of 8.11 to the US dollar, thus scrapping its decade-old pegging of one dollar to 8.27 yuan.

 

The US has complained that the rate is still too high and American manufacturers contend that the RMB is undervalued by as much as 40 percent, which gives Chinese exporters an "unfair" price advantage and hurts the US labor market.

 

China's central bank said last month it will increase flexibility of the currency.

 

Cao Honghui, a finance research fellow with the Chinese Academy of Social Sciences, said the yuan's recent appreciation will be welcome news as President Hu Jintao prepares to visit the US.

 

(Xinhua News Agency April 7, 2006)