Treasury Says China Currency Progress Reversed; Still Not Currency Manipulator
The Treasury Department again declined to declare China a currency manipulator, despite finding continued undervaluation of the renmenbi (RMB), in its latest semiannual report on international exchange rates and their effect on trade. The RMB appreciated during 2013 on a trade-weighted basis, but not as fast or by as much as is needed, said Treasury, and “large-scale intervention resumed.” During 2014, however, the RMB exchange rate has reversed direction, depreciating by 2.68 percent in the year to date, it said.
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Depreciation in 2014 came despite the fact that, for most of 2013 the RMB exchange rate was near the top end of the daily trading band, suggesting continuous pressure for more appreciation, said Treasury. There are also other signs the RMB’s exchange rate adjustment process remains incomplete, like large current account surpluses and rapid productivity growth, and the currency has further to appreciate before reaching its equilibrium value, it said.
Nonetheless, the Chinese government has been intervening in currency markets to prevent appreciation. “The Chinese authorities have been unwilling to allow an appreciation large enough to bring the currency to market equilibrium, opting instead for a gradual adjustment which has now been partially reversed,” said Treasury. “China has continued large-scale purchases of foreign exchange in the first quarter of this year, despite having accumulated $3.8 trillion in reserves, which are excessive by any measure,” it said. This suggests continued actions to impede market determination.
Despite China’s unwillingness to let the market play a greater role in determining exchange rates, as well as concerns over intervention in currency markets by South Korea, the Treasury Department again decided not to take action. “Treasury has concluded that no major trading partner of the United States met the standard of manipulating the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade,” it said. “Nonetheless, Treasury is closely monitoring developments in economies where exchange rate adjustment is incomplete,” with particular attention paid to China, it said.