Yuan clocks second straight weekly gain

China’s yuan was headed for a second weekly gain amid speculation that spiraling inflation could force policymakers in Beijing to allow faster appreciation in its currency and avert a full fledged trade war with major partners such as the US. China allowed the yuan to lead Asian currency gains this week after inflation rose at the fastest pace in two years and world leaders discuss the rising global imbalances at a Group of 20 nations’ summit in Seoul, South Korea. The yuan hit 6.6173 on November 11, the strongest since 1993. The People’s Bank of China set the reference rate for yuan trading at 6.6239 per dollar, the strongest since a peg ended in July 2005. The Chinese currency rose 0.4% this week.



World Bank President Robert Zoellick said that leading economies should consider adopting a modified global gold standard to guide currency rates. Writing in the Financial Times, Zoellick called for a new system of floating currencies as a successor to the Bretton Woods fixed-exchange rate regime, which broke down in the early 1970s and involved measuring currency rates against gold. Zoellick said the new system is likely to need to involve the dollar, the euro, the yen, the pound and the Chinese yuan that moves towards internationalisation and then an open capital account. But, Zoellick later denied he was suggesting a move towards the gold standard saying that it would not be practical for the major economies. Gold rallied on the news, hitting record highs Monday and Tuesday after Zoellick's opinion piece was published.