US labeling China currency manipulator meets opposition, worries markets

0 Comment(s)Print E-mail Xinhua, August 8, 2019
Adjust font size:
The United States labeling China a currency manipulator following the weakening of the Chinese yuan (CNY) is an action opposed by U.S. market players and scholars and has rattled markets. [Photo/VCG]

The United States labeling China a currency manipulator following the weakening of the Chinese yuan (CNY) is an action opposed by U.S. market players and scholars and has rattled markets.

Such a move would be "mostly a symbolic gesture" that cannot cause "significant ramifications" against China, and the intensifying trade war would hamper U.S. and global growth momentum, according to some U.S. financial professionals and scholars.

US labeling a symbolic gesture

The U.S. Treasury has designated China as a currency manipulator, citing the Omnibus Trade and Competitiveness Act of 1988. Under the law, the treasury should initiate negotiations first through the International Monetary Fund (IMF) or bilaterally, which normally takes a year.

"Opening an investigation through the IMF is mostly symbolic as the IMF is unlikely to declare China as a currency manipulator," said a group of economists at Bank of America (BofA) Merrill Lynch in a report on Tuesday.

There is the potential for the U.S. administration "to invoke other trade laws, but they would also be generally symbolic with few significant ramifications," said the BofA Merrill Lynch Global Research report.

That's because the IMF estimated that the Chinese currency was appropriately valued relative to fundamentals, while the U.S. dollar was 6-12 percent overvalued in a report last month.

"In the meantime, the question is what this means for the likelihood that the U.S. will take steps to intervene in the FX (foreign exchange) market and weaken the dollar in response," said the economists.

In this regard, Jeffrey Sachs, a senior United Nations advisor and renowned economics professor at Columbia University, held that the weakening of the CNY does not suggest China is manipulating its currency.

"This is true even according to the arbitrary standards of America's own trade laws, much less according to objective standards," Sachs said in a published article on Tuesday.

He further pointed out that the U.S. Treasury acknowledged in its report in May that China does not meet the criteria of a currency manipulator, because there is no sign China tried to expand its current account surplus through currency manipulation and the country's foreign exchange reserves have been stable for the past two years.

The Treasury's reversal yesterday is arbitrary, just as the U.S. imposition of new tariffs against China was last week, said the scholar.

Similarly, investment strategists with the Swiss investment bank UBS also cautioned in a research report on Tuesday against framing the depreciation of the CNY as the start of a competitive devaluation, as the yuan's fall reflected "worsening economic fundamentals and rising trade tariff risks."

They also mentioned that Chinese policymakers appeared "wary of unhinging expectations for yuan stability," because Beijing "is well aware of the negative costs linked to currency depreciation, from capital markets to capital outflows."

"We would view Monday's moves as a reminder that the yuan exchange rate may reflect external headwinds, rather than the start of a competitive devaluation policy," they said.

The People's Bank of China (PBOC), or China's central bank, said Tuesday that China will not use the currency as a tool to deal with trade disputes and the U.S. label does not meet the quantitative criteria for the so-called "currency manipulator" set by the U.S. Treasury.

"Though the U.S. has continued to escalate the trade dispute since early 2018, China has kept its promise of not carrying out competitive devaluation. China has never used and will not use the RMB exchange rate as a tool to deal with the trade frictions," the PBOC said in an online statement.

1   2   >  


Follow China.org.cn on Twitter and Facebook to join the conversation.
ChinaNews App Download
Print E-mail Bookmark and Share

Go to Forum >>0 Comment(s)

No comments.

Add your comments...

  • User Name Required
  • Your Comment
  • Enter the words you see:   
    Racist, abusive and off-topic comments may be removed by the moderator.
Send your storiesGet more from China.org.cnMobileRSSNewsletter