US set to press for appreciation of yuan

The Obama administration declined to brand China a manipulator of its exchange rate while calling the yuan undervalued and vowing to press for further appreciation of the currency.

The Treasury Department, releasing its semi-annual report to Congress on the currency policies of major trading partners, said yesterday it will “press for policy changes that yield greater exchange-rate flexibility” in the yuan. The report also criticized Japan for unilaterally selling the yen in August and October, and specified that the US didn’t support the actions. The US contends that China uses an undervalued currency to give its exporters an unfair advantage in overseas markets and boost growth. At the same time, the administration of President Barack Obama has sought to avoid actions that could cause friction with the world’s No. 2 economy and the second- largest U.S. trade partner.

“The administration has probably decided it would be counter-productive to pull the trigger at this stage on the charge of currency manipulation,” said Eswar Prasad, a senior fellow at the Brookings Institution in Washington and a former International Monetary Fund economist. “Given the fragility of its economic recovery, the U.S. cannot afford a broader trade war with China at this juncture.” The Chinese government is unlikely to respond “constructively” to pressure on its currency policy and therefore the administration “prudently decided to save its powder for future battles,” Prasad said.

‘Strong’ Pressures
The Treasury said in the report that China “has resisted very strong market pressures” over the past decade for appreciation of the yuan. “China’s real effective exchange rate has exhibited persistent and substantial undervaluation, although the estimated range of misalignment has narrowed over the course of the past 18 months.”

The US should move beyond the “useless, meaningless” quarrel over the yuan’s exchange rate and look to new areas for bilateral and global trade cooperation, China’s state-run Xinhua News Agency said in a commentary on Wednesday. The nation is making the currency more flexible, and gradually moving toward more balanced trade, Hong Lei, a spokesman for the foreign ministry, said at a briefing in Beijing on Wednesday.

China often bristles at criticism that its exchange rate is undervalued.