September 17, 2010Geithner Takes Middle Ground on Yuan
U.S. Treasury Secretary Timothy Geithner urged Congress to increase pressure on China (FT) to allow its currency value to rise but discouraged harsh action, amid rising tensions over the effects of an undervalued yuan on the U.S. economy. During his appearance in front of Senate and House committees, he said the White House was examining a range of options to persuade Beijing to act, but he stopped short of promising aggressive legal or administration action demanded by lawmakers.
The Chinese foreign ministry rebuffed criticism of China's currency intervention, saying "appreciation of the renminbi will not solve the U.S. deficit and unemployment problems."
Geithner said he was considering a proposal to declare the Chinese currency manipulation an illegal export subsidy. However, he resisted calls to name China a currency manipulator in a twice-yearly foreign exchange report due mid-October.
He stressed the need to not burn bridges for future business opportunities with China, since currency overhaul is ranked low (DowJones) on U.S. companies' priorities for China, according to the U.S.-China Business Council. The yuan had its best weekly advance in twenty-eight months on speculation of a faster pace of appreciation (Bloomberg).
Analysis:
On FT.com, Stefan Wagstyl says no one should expect U.S. pressure to cause radical changes in Beijing's currency policy. China's central bank wants to maintain currency stability in part because "large fluctuations in the dollar's exchange rate may impede global economic recovery."
On Bloomberg, William Pesek says the undervalued yuan makes it harder for the United States and EU to boost growth, but China must internalize how it would benefit from the resulting increased purchasing power and better use of Chinese savings.
Background:
This Backgrounder examines the U.S.-China trade and currency imbalances.
"Don't worry Lassie ... China will come around ... I just know it"_____
