US warns China its currency is still undervalued

Tags: News
The Obama administration on Tuesday warned Beijing that its currency was too weak and expressed doubt over the Asian giant's resolve to let market forces guide the value of the yuan.

In a semiannual report to Congress, the US Treasury stopped short of declaring China a currency manipulator, but singled it out among large US trading partners for its currency practices.

"Recent developments in the ... exchange rate raise particularly serious concerns if they presage a retreat from China's announced policy of allowing the exchange rate to reflect market forces," the Treasury said.

Washington sees currency management by China and other developing countries as an impediment to rebalancing the global economy away from a situation in which rich nations borrow heavily to buy goods from poor nations.

Emerging markets often build dollar reserves by keeping their currencies weak to spur more exports, pushing developed economies to borrow to cover their import tab.

The United States initially welcomed a move by China in March to allow the yuan currency to vary more in value.

But in the month prior to China's trading band decision, there were reports of "heavy intervention" by Chinese authorities to keep the yuan's value low, the U.S. Treasury said in the report.

Many U.S. lawmakers and firms have long complained that China deliberately undervalues the yuan to gain an edge in international markets. Some developing countries argue that America's easy-money interest rate policies result in a flood of cash into their markets, pushing them to build up dollar reserves to intervene in their currencies and keep them stable.

In the report, the Treasury said currency interventions and dollar reserve accumulation appeared to have increased globally in the second half of 2013.

"Progress on rebalancing global demand continues to remain inadequate and may, in fact, have worsened," the Treasury said.

While noting a rise last year in the value of the yuan -- also known as the RMB, the report said the increase was too slow and did not go far enough. "Factors indicate a RMB exchange rate that remains significantly undervalued," it said. The turn lower in the yuan this year, however, drew particular scrutiny in the report: "This suggests continued actions to impede market determination."

As has become its custom, Washington called on the stronger economies in Europe to do more to boost domestic demand so as to lift the economic growth in the euro zone.

However, the Treasury did appear to soften its criticism against Germany, dropping language from a prior report that labeled Berlin's economic policy as having a deflationary impact on Europe.

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