Monday, December 15, 2008

US warns China over currency reforms amid turmoil

WASHINGTON (AFP) — The US Treasury has called on China to adopt swift currency reforms, warning that the Asian giant faced greater risks if the current global financial and economic crisis worsened.

In a closely watched semiannual report to the US Congress, the Treasury did not identify Beijing as a currency manipulator but said that the yuan was relatively undervalued against the US dollar.

It said Wednesday that the yuan's appreciation against the dollar had slowed since June, amid speculation that China was looking to weaken the currency to help the nation's exporters suffering from financial turmoil that has slammed the brakes on economic growth in the developed nations.

The yuan's value has been a sensitive issue between China and the United States, which has accused Beijing of deliberately keeping its currency low to protect the competitiveness of Chinese export prices.

US lawmakers have often blamed the snowballing US trade deficit with China on the weak yuan and sought sanctions against the world's most populous nation.

"Faster and more decisive implementation of exchange rate reform is essential for maintaining sustained, stable growth in China," the Treasury said in the report.

"If the current macroeconomic imbalances continue, in a period in which growth has slowed materially in the rest of the world, then the vulnerability of China's economy and the ultimate costs of adjustment will become much larger," the report warned.

It then asked China to "move more quickly towards a market-determined exchange rate and allow greater appreciation of the renminbi (yuan) against the dollar in the near-term."

US Treasury Secretary Henry Paulson raised the currency issue last week during high-level talks in Beijing but Chinese Commerce Minister Chen Deming said he believed the yuan would remain stable "if there's no major change" to the global economic environment and "if everybody continues to work together."

The Treasury report Wednesday did not identify China or any other country as a currency manipulator after its survey of exchange rate policies of 19 countries and the eurozone.

"Treasury has not found that any major trading partner of the United States met the standards identified" for US designation of having manipulated its currency under the law, it said.

On a real effective exchange rate basis, the yuan has appreciated against the dollar between 14 and 26 percent, depending on the measure used, since unpegging from the dollar in 2005, the report said.

"But by several of these measures, the real effective exchange rate of the renminbi remains below its peak in early 2002," according to the report.

The rate is the average of a country's currency relative to an index or basket of other major currencies adjusted for the effects of inflation.

US president-elect Barack Obama, at the height of campaigning ahead of the November 4 elections, accused China of manipulating its currency in a letter to the National Council of Textile Organizations.

Obama called for China to change its foreign exchange policies to rely less on exports and more on domestic demand for growth.