International Law

Geithner Blinks: US Says China is Not a Currency Manipulator

By Stan

This is a follow up to yesterday’s post on Treasury’s semi-annual report on international exchange rate policies.

We go through this “will they or won’t they?” dance every time with respect to China, and all throughout the Bush administration, the answer was “no, they won’t” label China a currency manipulator, much to the chagrin of some members of the US Congress (yeah, I’m talking to you Schumer and Graham).

The news leading up to this report, the first for the Obama administration, suggested that this time would be different. Treasury Secretary Geithner was on record mere weeks ago stating that China did, in fact, manipulate its currency.

Ha ha. As I wrote recently, that was the old Geithner, before the administration smacked him around (I assume) for going off message. Geithner now has a China problem and has to tiptoe very gently around any China issues, making it very difficult for him to play the tough guy in the future, should the situation warrant.

So what happened this time? Plus ça change . . .

Let’s let the Treasury press release speak for itself:

With respect to China, which has been highlighted in the Report in recent years, our conclusion is based on the following factors. First, China has taken steps to enhance exchange rate flexibility. Chinese officials reaffirmed in January 2009 their commitment to greater flexibility and the need to allow the exchange rate to adapt to an equilibrium level. Second, the Chinese currency appreciated by 16.6 percent in real effective terms between the end of June 2008 and the end of February 2009. As the crisis intensified, the currency appreciated slightly against the dollar when most other emerging market and other currencies fell sharply against the dollar. Third, official statistics suggest the pace of China’s foreign exchange reserve accumulation slowed in the fourth quarter of last year. Fourth, China has enacted a large fiscal stimulus package ? second in size to that of the United States in the G-20 ? which should help spur domestic demand growth and rebalance the Chinese economy. Even so, Treasury remains of the view that the renminbi is undervalued.

Given China’s large and rapid increase in its current account surplus, these steps should be just a beginning to a series of policy steps to rebalance the Chinese economy so that economic growth is more dependent on domestic demand, particularly private consumption.

Gee, at the end of the day, and after all the blather from some folks in the press, that’s a damn nice summation of China’s economic policy, not to mention a very reasonable statement of the US stance.

I like it. I like it a lot. But you have to wonder what happened behind closed doors between the time Geithner publicly stated that China was a currency manipulator and now. And no, the recently released forex reserve numbers here is not an adequate explanation.

© Stan for China Hearsay, 2009. | Permalink | No comment | Add to del.icio.us

Full post as published by China Hearsay on April 16, 2009 (boomark / email).