SHANGHAI, Sept. 13 – U.S. Treasury Secretary Timothy Geithner said that he believes Beijing has done “very, very little” to allow the appreciation of its national currency, the yuan, since the central government announced in June that it would initiate a more flexible exchange rate policy.
In an interview with The Wall Street Journal conducted on Friday, the U.S. treasury secretary was asked if he was satisfied with China’s progress on the yuan. To this, Geithner replied: “Of course not.”
“China took the very important step in June of signaling that they’re going to let the exchange rate start to reflect market forces. But they’ve done very, very little, they’ve let it move very, very little in the interim,” Geithner said during an interview with The Wall Street Journal.
After holding the yuan’s exchange rate steady at a value of roughly 6.83 per dollar for nearly two years, the People’s Bank of China dropped its de facto peg to the dollar on June 19 – just prior to a Group of 20 meeting in Toronto. The yuan has appreciated slightly since then and its value stood at roughly 6.76 per dollar on Monday after seeing considerable appreciation over the last week.
The recent revaluation of the yuan comes as Treasury Secretary Geithner is set to address the U.S. House of Representatives Ways and Means Committee on Thursday where he will present his views on China’s current exchange rate regime. Geithner believes that a stronger yuan would not only benefit China’s foreign trade partners, but would also contribute to a better standard of living for Chinese citizens.
“It’s very important to us, and I think it’s important to China, I think they recognize this, that you need to let it move up over a sustained period of time,” Geithner added.
Leading economists believe that the yuan’s true value could be undervalued by as much as 40 percent, so a roughly 1 percent rise over three months is not likely going to satisfy skeptics and policy makers in Washington – especially when they are up for reelection this fall.
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The Chinese are not likely to make any sudden large increase in the value of the Yuan against the USD. They are not stupid and see the long term consequences of how raising the Yen’s value caused bubbles that burst and affected the Japanese economy. A steady currency actually makes it easier for manufacturers and traders to plan ahead. The Chinese are actually in a way granting the US favours by (1) Buying their useless Treasury debt, (2) providing goods for the American consumer at cheap prices.
Here, in Australia, economists are not saying that the Yuan value is the problem. They blame the USA’s problem on a lack of savings. Nobody was forcing the Americans to spend like there is no tomorrow. Also the USA places restrictions on high-tech exports to China which could be high-priced, high margin goods. The Chinese are not likely to buy T-shirts, rubber slippers, coat-hangers, etc from the USA. Showing a lack of US competitiveness at times, Boeing at one time had a monopoly on the Chinese civilian jet market. Today Airbus has taken 50% of that.
Now with Japan also propping up her Yen against the dollar that takes a little of the pressure off China. See:
http://www.bloomberg.com/news/2010-09-16/china-get-out-of-jail-free-card-vexes-geithner-william-pesek.html