US Treasury Rescinds China “Currency Manipulator” Label

The US Treasury has determined that China should no longer be designated as a currency manipulator.

In a new report, Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, the Treasury cites economic reforms and commitments from China to refrain from devaluing the renminbi (RMB) as the reasons for this decision.

The report claims that “China has a long history of facilitating an undervalued currency through

protracted, one-sided intervention in the foreign exchange market and other tools” and that during the summer of 2019 it took concrete steps to devalue the RMB.

Given that the Treasury believed the purpose of this devaluation was to gain unfair competitive advantage in international trade, it subsequently labelled China as a currency manipulator under Section 3004 of the Omnibus Trade and Competitiveness Act of 1988.

However, in its new report, the Treasury says that the “Phase One” trade agreement negotiated between the US and China requires the latter to make structural reforms and other changes to its economic and trade regime in several key areas, including FX.

“In this agreement, China has made enforceable commitments to refrain from competitive devaluation and not target its exchange rate for competitive purposes. China has also agreed to publish relevant information related to exchange rates and external balances. Meanwhile, after depreciating as far as 7.18 RMB per US dollar in early September, the RMB subsequently appreciated in October and is currently trading at about 6.93 RMB per dollar,” the report states.

China has also apparently agreed to publish relevant information related to exchange rates and external balances.

Because of this, the “Treasury has determined that China should no longer be designated as a currency manipulator at this time”.

Elsewhere in the report, the Treasury says it has added Switzerland to its “Monitoring List” of “major trading partners that merit close attention to their currency practices and macroeconomic policies”. Switzerland is joined on this list by China, Japan, Korea, Germany, Italy, Ireland, Singapore, Malaysia and Vietnam.

Switzerland’s FX purchases declined in both scale and persistence from mid-2017 through mid-2019, and the Treasury estimates that net purchases of foreign exchange over the four quarters through June 2019 totaled 0.5% of GDP. But the report notes that since mid-2019 Switzerland’s FX purchases have increased markedly as the Swiss franc has appreciated against both the US dollar and the euro.

“Treasury continues to encourage the Swiss authorities to publish all intervention data on a higher frequency basis,” it says in the report.

Galen Stops

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