Geithner Refrains From Labeling China a Currency Manipulator
April 15 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner refrained from labeling China as a currency manipulator, backtracking from an assertion he made during his confirmation hearings in January.
In its first semiannual report on foreign-exchange policies since Geithner became secretary, the Treasury said that while the yuan remains "undervalued," no country "met the standards" for illegal currency manipulation during the period of the report, from July 2008 through December 2008.
The conclusion clashes with Geithner's January 22 statement to a Senate panel that "President Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency." Today's shift may anger some U.S. lawmakers and trade unions who have sought measures to punish the Chinese and other trading partners perceived to have undervalued exchange rates.
"Treasury did not find that any major trading partner had manipulated its exchange rate for the purposes of preventing effective balance-of-payments adjustment or to gain unfair competitive advantage," today's report said.
By law, the Treasury has to enter direct talks with a country deemed to be manipulating its currency, and also seek redress through the International Monetary Fund.
White House
The White House was consulted on today's report, a Treasury official told reporters in Washington on condition of anonymity.
The official also said that the administration isn't satisfied with what the person termed a slight movement versus the dollar in recent months.
Geithner's January remarks suggested a change in policy from the Bush administration, which had stopped short of using the term in criticizing China's exchange-rate management. The last time a country was branded as a manipulator was China in 1994.
The January comments led economists and policy makers from around the world to suggest that clashes over the yuan's value might stoke tension between two of the world's biggest economies and undermine cooperation to counter the global recession.
In January, China's Commerce ministry denied manipulating the value of its currency to promote exports and warned that accusations of government tampering in foreign exchange would fuel U.S. protectionism. People's Bank of China Vice Governor Su Ning called Geithner's allegations "untrue and misleading."
Repairing Ties
Since that time, Geithner has worked to repair relations with China, the U.S.'s second-largest trading partner, behind Canada. In February, he pushed finance ministers and central bankers from the Group of Seven industrial nations to soften criticism of China's economic policies, according to a person briefed on the matter.
He also held a series of phone calls and meetings with Chinese officials, including Vice Premier Wang Qishan and Finance Minister Xie Xuren, according to details of Geithner's schedule provided by the administration.
In today's report, released by the Treasury in Washington, Geithner said China "has taken steps to enhance exchange-rate stability," and that "officials acknowledged in January the need for greater flexibility and the need to allow the exchange rate to adapt to an equilibrium level."
According to the Treasury, the yuan, also known as the renminbi, appreciated 16.6 percent in inflation-adjusted 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 currencies fell sharply."
Yuan's Moves
China limited appreciation of the yuan against the dollar in July 2008 after the currency rose 21 percent against the dollar following the end of a fixed exchange rate three years earlier. From July 1 to the end of the year, the yuan rose 0.4 percent. Its value has been little changed since the beginning of the year, closing today at 6.8325 to the dollar.
Geithner said China has enacted a large fiscal stimulus program, which should help spur domestic demand, strengthening the currency. Still, the Treasury report said that China's low level of debt means it has "headroom to undertake further fiscal measures."
Given China's trade surplus and reserve accumulation, the "Treasury remains of the view that the renminbi is undervalued," Geithner said in a statement accompanying the report.
The report noted that while the global recession forced an "unprecedented contraction in global trade" that led many currencies to depreciate against the dollar, many emerging market economies used their foreign exchange reserves to temper the effects.