A clerk at a foreign currency exchange desk at a hotel shows Chinese yuan banknotes in this July 22, 2005 file photo taken in Shanghai, China. China's currency nudged past 7.0 yuan to the U.S. dollar Thursday, April 10, 2008, a milestone bound to please Beijing's trading partners and dismay exporters struggling to remain competitive in overseas markets.

SHANGHAI, China—It was a shift in U.S. dollar terms of less than 1 cent.

But the Chinese yuan's drift below 7 yuan to the U.S. dollar Thursday marked yet another step in the dollar's decline as the currency of global business.

Thursday's breakthrough, widely anticipated for weeks, marked the first time the Chinese currency has ventured below the 7 yuan mark since the government loosened its peg to the dollar in 2005. The yuan has gained about 18 percent since then.

The dollar ended trading at 6.9916 yuan on the over-the-counter market, after dipping to an all-time low of 6.9907. It closed at 7.0017 on Wednesday.

An acceleration recently in the yuan's gains has been squeezing exporters, including multinationals, at a time when they already are stretched by surging costs for labor, energy and materials.

Although most foreign trade, in China and elsewhere, is counted in dollars, the greenback's decline has prompted exporters increasingly to set contracts in euros or British pounds to avoid foreign exchange losses, said Ma Xinzheng, deputy chief editor of WebTextiles.com, an industry research group.

A majority of 1,000 textile traders responding to a survey released by the group this week said they were taking payment in alternative currencies.

"Some traders try their best not to deal in U.S. dollars," Ma said.

The dollar's decline has also prompted sovereign wealth funds to diversify investments beyond dollar holdings, billionaire financier George Soros noted in a conference call with journalists Thursday.

"There definitely has been a decline in the status of the dollar as the unquestioned monetary reserve," Soros said.

Soros, whose own currency dealings were viewed by some critics as contributing to the Asian currency turmoil of 1997-98, said he believed a lack of a viable alternatives to the dollar has driven commodity prices higher as investors seek shelter, and contributing to global inflation.

A longtime advocate of laissez faire, Soros has recently supported more controls in times of crisis.

China still insulates its financial markets with various controls, including restrictions that keep the Chinese yuan trading within a narrow band. And the yuan has lost value against the euro and some other currencies, partly because of its tether to the dollar -- a sore point for some European trading partners.

The United States wants the yuan to appreciate even faster, and some American lawmakers are calling for punitive tariffs on Chinese imports. Washington reported a $256.3 billion trade deficit with China last year, its highest on record with any country.

During a visit to Beijing last week, U.S. Treasury Secretary Henry Paulson reiterated calls for Beijing to let the yuan float.

China has been noncommittal.

A stronger yuan makes Chinese-made products more expensive in overseas markets, while boosting the yuan's purchasing power in dollar terms, helping to encourage more imports.

While the yuan's gains have helped take the sting out of soaring prices for imported crude oil, for many export-oriented industries, foreign exchange losses have outstripped the gains.

"These are hard times for us," said Wei Yaoting, a textile trader in Shanghai that exports to the United States.

A typical U.S. order, received last July and delivered in November, was not paid for until February, said Wei, manager of Shanghai HTC Holdings Import & Export Co. Over those seven months, the dollar-denominated payment slumped.

"We end up swallowing the losses," he said.

"The more exports, the bigger the losses. We just break even," Wei said. "We're even considering giving up selling to foreign markets that trade in U.S. dollars."

Source from www.boston.com