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April 17, 2014

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US rules out China as currency manipulator

THE US Treasury Department has said China cannot be ruled as a currency manipulator, but said the pace of the yuan’s appreciation has been insufficient.

“China’s currency appreciated on a trade-weighted basis in 2013 but not as fast or by as much as is needed,” the US Treasury said in the latest semi-annual Report to Congress on International Economic and Exchange Rate Policies on Tuesday.

Meanwhile, it noted “the recent widening of the trading band gives China the opportunity to reduce intervention and allow the market to play a greater role in determining the exchange rate.”

According to the report, the yuan rose by 2.9 percent against the US dollar in 2013, and China’s current account surplus fell to 2.1 percent of gross domestic product last year, down from 2.3 percent of GDP in 2012 and from a peak of over 10 percent in 2007.

The report also noted that China’s leadership has expressed “a strong desire” for exchange rate reform, and the Third Plenum decision document underlines the goal to “perfect the market-based yuan exchange rate formation mechanism.”

However, the US Treasury voiced concerns over recent volatility of the yuan’s value, saying “the (yuan’s) recent depreciation underlines the importance of a significant increase in the transparency of China’s actions in the foreign exchange market.”

The Treasury said it will continue to carefully check China’s exchange rate regime and the yuan’s path and will press for further policy changes.

Yi Gang, deputy governor of the People’s Bank of China, said last week in Washington that the recent depreciation in the value of the yuan is within “normal” range and China is still on track toward a more market-oriented exchange rate regime.

He expected the yuan’s flexibility to increase in the future with two-way fluctuation instead of one-way appreciation.

“I believe that, as time passes by, people will see clearly and better that the entire exchange rate regime mechanism in China is moving toward a market-oriented way,” he added.

The US Omnibus Trade and Competitiveness Act of 1988 requires the Treasury to report whether its major trading partners manipulate the rate of exchange between their currency and the US dollar to prevent effective balance of payments adjustments or gaining unfair competitive advantage in global trade.




 

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