China Reportedly Revising Currency Policy

April 8, 2010
Move would create greater yuan flexibility and a small jump in value against the dollar.
In a move that is no doubt welcome news to U.S. manufacturers, the Chinese government sent its first signals that it will revise its currency policy, allowing for greater flexibility of its value, and a small, but noticeable jump against the dollar, according to several reports emerging out of Beijing on Thursday. For the better part of two years, China has maintained its currency at about 6.8 to the dollar in an effort to withstand global economic recession. The New York Times reports that China may announce a modification of its exchange-rate policy in the next few days. The timing coincides with U.S. Treasury Secretary Timothy Geithners arrival for meetings with Chinese Vice Premier Wang Qishan and other senior Hong Kong officials. In recent months, Congress has been outspoken in wanting to put greater pressure on China to address its currency policy. I think theres no question that at some point the U.S. and other developed countries are going to have to seriously negotiate with China about the undervaluation of their currency, said U.S. Sen. Jeff Bingaman (D-N.M.) in an interview with IndustryWeek last month. Its very difficult for us to be competitive with manufacturing jobs in this country when the currency imbalance is as substantial as it is. China has long been accused of manipulating its currency exchange rates, which can create an unfair advantage over U.S. manufacturers by essentially lowering the price of their exports. As a result, U.S. manufacturers have had to compete at home against artificially cheap imported rivals. Currency manipulation also hurts U.S. exports by making American goods sold abroad more expensive and harder to compete against cheaper Chinese goods. According to a new study released last month, Economic Policy Institute economist Scott calculated that Chinas currency manipulation, along with suppression of labor rights and powerful subsidies, led to Chinas trade surplus rising to 68.5% of the U.S. total trade deficit. But those policies appear to be changing. Xia Bin, a member of the monetary policy committee of the Chinese central bank, hinted that changes are afoot in currency policy, in remarks to reporters in Shanghai. Whether to let the yuan slowly appreciate or let it rise to a tolerable range after careful calculation, I think it is better to have that quick, prompt appreciation, he said according to Reuters.

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