US criticises China, Japan on currencies

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Pakistan News.Net
Wednesday 28th December, 2011

WASHINGTON - The Obama administration has criticized China and Japan for their currency exchange rate policies, while once again stopping short of labeling Beijing as a manipulator.

In its semi-annual currency report released Tuesday, the Treasury Department, criticized Japan's two latest currency interventions, while stating that China's moves to allow yuan to appreciate remains incomplete.

"China's longstanding pattern of reserve accumulation, the persistence of its current-account surplus and the incomplete appreciation, especially given rapid productivity growth in the traded-goods sector, indicate that the real exchange rate of the renminbi is persistently misaligned and remains substantially undervalued," the report said.

The Treasury Department said it would continue to press Beijing for greater exchange-rate flexibility, as well as level playing field for foreign companies.

There is mounting criticism of the trade advantage China has been garnering in global markets by keeping the yuan artificially low to boost exports.

A major US concern is the rising trade imbalance
with China.

The U.S. trade deficit with China reached o a record $273.1 billion in 2010 from about $226.9 billion in the previous year. This year, from January to October trade deficit with China is already around $245.5 billion.

"While China's real exchange rate has appreciated, the process of appreciation remains incomplete," the report points out.

The yuan has appreciated nearly 12 per cent against the U.S. dollar on an inflation-adjusted basis since June 2010.

The Peterson Institute for International Economics recently estimated the yuan was undervalued by 24 percent against the dollar, down from 28 percent earlier in the year. The change is due Beijing's policy of gradual currency appreciation and higher Chinese inflation, the think tank feels.

The report has also targeted Tokyo for its solo yen-selling interventions in August and October that followed a joint Group of 7 action in the aftermath of the earthquake and tsunami on March 11.

"The unilateral Japanese interventions were undertaken when exchange market conditions appeared to be operating in an orderly manner and volatility in the yen-dollar exchange rate was lower than, for example, the euro-dollar market," the report said.

In contrast to the post-earthquake joint G7 intervention in March, the United States did not support these interventions, the Treasury has pointed out, urging Tokyo to pursue reforms to revive its domestic economy rather than try to influence the exchange rate.

Japan has repeatedly said it would intervene to stop what it termed excess volatility.

On Sunday Japan and China had formalized a financial agreement for direct trading of their currencies, instead of using the dollar as intermediary. China is Japan's biggest trade partner with annual two-way trade of close to $350 billion, and as part of the agreement Japan will also apply to buy Chinese bonds next year.

Presenting the report to Congress on international economic and exchange rate policies, the Treasury has assured that it will
"closely monitor the pace of appreciation and press for policy changes that yield greater exchange rate flexibility, a level playing field, and a sustained shift to domestic demand-led growth."

The U.S. Senate this year passed a bill that would require the administration to slap penalties on Chinese imports if it fails to adopt market-based exchange rates. But due to lack of support in the lower chamber it is unlikely to become law.

Beijing has in the past warned the United States not to "politicize" the currency issue.

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Source: http://www.pakistannews.net/story/202190607

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