Wandering China

An East/West pulse of China's fourth rise from down under.

US does not brand China ‘currency manipulator’ [The Age/AP]

The value of the yuan comes into the spotlight again as the US Treasury concludes that China was allowing the yuan to appreciate against the dollar; rendering the term ‘currency manipulator’ now invalid.

By trying to limit the pace of appreciation, China is not allowing the exchange rate to serve as a tool to counter inflation in its own economy…” US Treasury

In other reports…

US says China yuan undervalued, but not manipulated (Reuters, May 27, 2011)

China Must Let Yuan Rise Faster, Treasury Tells Congress (Bloomberg Business Week, May 28, 2011)

China not manipulating currency: US Treasury (China Daily/Xinhua, published May 28, 2011)

– – –

US does not brand China ‘currency manipulator’
Veronica Smith
Source – The Age, published May 28, 2011

The United States on Friday called on China to speed up progress in making its currency more flexible, but refrained from branding Beijing a currency manipulator, a move that could trigger sanctions.

In a long-delayed report to Congress, the US Treasury said it had concluded that China was allowing the yuan, or renminbi, to appreciate against the dollar and had shown willingness to continue promoting exchange-rate flexibility.

The Treasury Department cited “the ongoing appreciation of the renminbi against the dollar since June 2010” as well as “China’s public statements asserting that it will continue to promote RMB exchange rate flexibility.”

The Department also noted “China’s recent policy commitments through the G20 and the US-China Strategic and Economic Dialogue to address external imbalances,” the Treasury said in a statement.

“However, Treasury believes that progress thus far is insufficient and that more rapid progress is needed.”

Since China’s pledge in June 2010 that it would make its currency more flexible, the yuan had appreciated 5.1 percent against the dollar since then through the end of April, or about a 6.0 percent annual pace.

Adjusted for China’s “significantly” higher inflation compared with the US, the currency has appreciated at a much stronger annual rate of roughly 9.0 percent, the report said.

“By trying to limit the pace of appreciation, China is not allowing the exchange rate to serve as a tool to counter inflation in its own economy,” the Treasury said.

“A more rapid pace of nominal appreciation would enable China to achieve the needed adjustment in the real value of its currency while simultaneously reducing inflationary pressures in its domestic economy.”

The Treasury noted that China’s international reserves soared by $197 billion over the January-March period, saying that was among the signs indicating “the renminbi remains substantially undervalued.”

The Treasury warned that China’s monetary policy worked against China’s stated goal of strengthening domestic demand to wean the economy away from dependence on exports.

“And it places an undue burden of adjustment on other emerging market economies that maintain more flexible exchange rate systems and that have already seen substantial exchange rate appreciation.”

As a member of the Group of 20 rich and emerging-market economies, China has pledged to work toward reducing global imbalances in part responsible for the 2008-2009 financial and economic crises.

The Treasury’s semi-annual Report to Congress on the currency practices of the country’s major trading partners covers international economic and foreign exchange developments in the second half of 2010, and certain data and developments through April.

China has drawn sharp criticism from a number of US lawmakers who allege it keeps the yuan undervalued to make its exports cheap, gaining a trade advantage that has cost American jobs.

A Treasury finding that China manipulated its currency would pave the way for US economic sanctions against Chinese imports.

Treasury said it would “continue to closely monitor the pace of RMB appreciation by China.”

“We will continue to encourage China to open markets and to pursue policies that level the playing field and support a shift to domestic-demand led growth.”

The Treasury’s report to Congress is required by law and was supposed to have been delivered by April 15, but was delayed to take into account high-level US-China talks in Washington the prior week.

Treasury Secretary Timothy Geithner has called the exchange rate situation with the Asian giant “the most important problem to solve in the international monetary system today”.

The US-China Business Council welcomed the report, saying the Treasury Department “continues to make the right call on China’s currency policy.”

“Designating China as a ‘manipulator’ would achieve nothing,” said council vice president Erin Ennis.

“USCBC believes that Obama administration’s approach of employing multilateral and bilateral engagement with China is the most useful way to make progress on the exchange rate issue.”

© 2011 AFP


Filed under: AP, Beijing Consensus, Chinese Model, Domestic Growth, Economics, Finance, Influence, International Relations, Public Diplomacy, Soft Power, Strategy, The Age, U.S., Yuan

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