Once again, the Treasury Department has elected not to label China as a currency manipulator. Many economists and politicians believe that action is absurd because the People's Republic clearly controls the value of the yuan, which gives China an advantage in trade with other nations.
The Treasury Department's "Report to Congress on International Economic and Exchange Rate Policies" states:
Chinese authorities have acknowledged the need for continued exchange rate reform and have taken a number of steps in this direction. In April 2012, China's central bank, the People's Bank of China (PBOC), announced a widening of the RMB daily trading band against the dollar in the Mainland currency market, from ± 0.5 percent to ± 1.0 percent. The trading band limitation applies to intra-day movements of the RMB against the dollar. In making the announcement, the PBOC stated that it was widening the band "in order to meet market demands, promote price discovery, enhance the flexibility of RMB exchange rate in both directions, [and] further improve the managed floating RMB exchange rate regime based on market supply and demand with reference to a basket of currencies." Further widening of the band over time, if implemented in a way that allows the value of the exchange rate to better reflect market forces, would be positive for China, the United States, and the global economy.
Manufacturing associations and some politicians already have attacked the report as they claim that U.S. jobs continue to move to China because of its advantages in trade that hurt U.S. competitiveness, particularly when it comes to the cost of operating factories.
Douglas A. McIntyre
Filed under: 24/7 Wall St. Wire, China, Currency, International Markets, Politics