Copyright China Photos, Getty Images
A yuan note is surrounded by U.S. dollars. While the U.S. Treasury says China's currency remains undervalued, it did comment on 'renewed willingness by authorities to allow the exchange rate to strengthen.'

Treasury Says It Again: China Does Not Manipulate Currency

Oct. 16, 2014
However, the yuan remained "significantly undervalued," the Treasury said, reiterating the description it has long used in pressing China to allow its currency to move toward a market-determined exchange rate.

WASHINGTON - The U.S. Treasury said Wednesday that China does not manipulate its currency, but pushed Beijing to do more to focus on domestic demand -- not exports -- to drive economic growth.

In a twice-yearly report to Congress, which would set sanctions on any country officially branded a "manipulator," the Treasury said the yuan, or renminbi (RMB), had "partially recovered" from a sharp plunge earlier in the year and had appreciated by 1.9% since late April.

However, the yuan remained "significantly undervalued," the Treasury said, reiterating the description it has long used in pressing China to allow its currency to move toward a market-determined exchange rate.

The Treasury has consistently decided to not brand China a currency manipulator, which could lead Congress to impose sanctions on the world's second-largest economy and top holder of U.S. debt.

The Treasury said the yuan gradually appreciated in July and August amid low intervention, "and strong FX inflows also indicate renewed willingness by authorities to allow the exchange rate to strengthen."

The nominal effective exchange rate has appreciated 1.6% in the year-through Sept. 30, it said. The yuan was 1.4% weaker against the dollar in that period.

At the end of June 2014, China's total holdings of foreign-exchange reserves reached nearly $4 trillion, or about 40% of China's gross domestic product.

"This is well beyond established benchmarks of reserve adequacy, and it is very much in China's interest to fulfill its own commitment to move more rapidly to a market-determined exchange rate, with intervention only in the case of disorderly market conditions."

Treasury Points Out South Korea's Won

The Treasury also pointed to South Korea's market intervention with the official aim of smoothing won volatility. Exports accounted for all of the country's 2.9% annualized growth in the first half of 2014, "highlighting the economy's continued dependence on external demand."

The won depreciated 1% against the dollar in the year through mid-October, and on a real effective basis, the won appreciated 3.9% through August, it said.

"Allowing for exchange rate appreciation in response to market forces would help rebalancing, as it would encourage reallocation of production resources to the non-tradables sector, which includes most services," the report said.

"Given Korea's sizeable current account surplus, substantial reserves, and undervalued currency, the won should be allowed to continue to appreciate."

Copyright Agence France-Presse, 2014

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