Treasury Testifies China’s Currency Action Too Slow, Congress' Role Useful

Senate Committee Leadership Wants Action on China Currency Manipulation

In their opening remarks, Senate Banking Committee Chairman Dodd (D) and Ranking Member Shelby (R) emphasized that it is time for the U.S. to take action against China’s currency manipulation. This same sentiment was expressed by several other Committee members.

Questionable value in naming China a manipulator. While Treasury Secretary Geithner admitted that China’s currency is undervalued, he expressed doubt as to whether China’s actions would meet the law’s threshold for being designated as a currency manipulator. Geithner also expressed the opinion that even if China was named a currency manipulator in the semiannual report, the designation would do nothing more than require the Administration to meet with China, something that is already being done.

China’s X-C policy to be discussed with G-20. Treasury Secretary Geithner testified that China’s exchange (X-C) rate policies will be discussed at the November G-20 meetings and the Administration plans to use the G-20 process to garner international support for reform.

Agreement on currency bill may be useful. Committee Chairman Dodd noted that although there is probably not enough time left in the current legislative session to enact China currency legislation, he believes that the U.S. negotiating position at the November G-20 meetings would be enhanced if Congress and the Administration could at least reach an agreement on an acceptable legislative proposal.

Geithner emphasized that in order to be effective, any action, including legislation, against China’s exchange rate policy would have to be (i) consistent with international obligations; and (ii) offer more benefits than risks.

Japan’s unilateral intervention. Dodd noted that the Japanese government’s recent intervention in the currency markets to halt the appreciation of the yen is of concern, although it is too early to know the impact of that action.

House Committee Gets Geithner Views on Currency Bill, Manipulator Status

On September 16, 2010, the House Ways and Means Committee held a second day of hearings on China’s exchange rate policies. During the hearing, Geithner was questioned on possible China currency legislation and why the administration has failed to designate China as a currency manipulator under current law.

Currency appreciation has been too slow, limited. Geithner testified that China needs to allow significant, sustained appreciation over time to correct its currency undervaluation and that progress to date has been too slow and too limited in scope.

Congressional concern on China useful. When questioned about the Administration’s position on possible legislation on China’s currency policies, Geithner noted the importance of China knowing that Congress, in addition to the Administration, is concerned about the exchange rate issue, as it gives the U.S. additional leverage when negotiating with China.

No administration decision on a bill. Geithner notes that the Administration has not made a decision on whether it would support any particular piece of legislation, just that it would need to be consistent with U.S. international obligations and that the benefits outweigh the risks. However, Geithner assured the Committee that the Administration is willing to work with Congress to ensure that any possible legislation meets those two goals.

Next report will be on time. Geithner assured the Committee that the Administration’s semiannual exchange rate report, which is due in approximately a month, will be issued on time. (The Committee members expressed concern that the Administration issued its last report three months late.)

(See ITT’s Online Archives or 09/16/10 news, 10091618, for BP summary for the House Ways and Means Committee’s September 15, 2010 China currency hearing.

See ITT’s Online Archives or 09/15/10 news, 10091514, for BP summary on 36 associations’ opposition to China currency bill.

See ITT’s Online Archives or 09/01/10 news, 10090157, for BP summary of House hearing addressing whether China’s currency manipulation is a CV subsidy.

See ITT’s Online Archives or 09/01/10 news, 10090158, for BP summary of House Trade Subcommittee Chairman’s statement that action by Congress on China currency is imperative.

Senate Banking Committee testimonies, archives webcast, etc. available here.

House Ways and Means Committee testimonies, etc. available here.