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US delays currency report for further China negotiations

Monday 18 October 2010 - by Nicola York

The US Treasury is delaying the publication of a report to Congress on international economic and exchange rate policies in order to allow further negotiations with China over the undervaluation of the yuan.

Treasury secretary Timothy Geithner says that while China’s actions since early September have been effective at accelerating the pace of currency appreciation against the dollar, it is important for the yuan to appreciate further.

Since June this year, the renminbi has appreciated by around 3 per cent against the US dollar, and this has accelerated to more than 1 per cent per month since early September.

Geithner says: “If sustained over time, this would help correct what the IMF has concluded is a significantly undervalued currency. 



“By continuing to implement reforms to strengthen domestic demand and by allowing the exchange rate to move higher to reflect fundamental economic forces, China will make a significant positive contribution to the global rebalancing effort, help reduce pressure on those emerging market economies that have more flexible exchange rates, and provide a more level playing field for trading partners around the world.”


But Geithner stresses that building a more balanced global economic recovery is a multilateral challenge and not just down to China and the US.

The Heads of State, finance ministers, and central bank governors of the G20 and the Asia-Pacific region will participate in several important meetings over the coming weeks and Geithner says he will delay the report to Congress until after the G20.

BNP Paribas says: “The US wants to leave the door towards negotiations with China and Asia open. A shock and awe approached concerning QE or the US Treasury calling China a currency manipulator would close the negotiation door with a big bang.

“Friday’s balanced speech by Bernanke and the delay of the Treasury’s currency report indicates that the US has a strong interest in a negotiation solution.

“A positive negotiation outcome on the G20 meeting is likely to have significant currency implications as it would allow the USD to weaken against those currencies it should have weakened against in the first place, namely Asian currencies.”


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