"The Chinese government has never used so-called currency manipulation to gain benefits in its international trade," AFP reported the Chinese Commerce Ministry as saying in a faxed statement.
On Thursday, Treasury Secretary designate Timothy Geithner said in a written response to questions from a U.S. Senate panel that "President Obama -- backed by the conclusions of a broad range of economists -- believes China is manipulating its currency."
U.S. Treasury officials and members of Congress have long criticized China for keeping its currency, the yuan, undervalued, saying this undermines U.S. trade competitiveness by making Chinese goods artificially cheap.
Wall Street Journal 1/23/2009
Should Mr. Geithner win Senate confirmation, as the committee recommended, his choice of language will likely draw attention to Treasury's next report on international currency practices, due in April. U.S. trade law requires the report to identify any country that manipulates its exchange rate for purposes of gaining an advantage in international
"You don't want to be the bull in the China shop when it comes to currencies right now," said Frank Vargo, a vice president of the National Association of Manufacturers, which has long lobbied against China's yuan policy. "But...we all know the Chinese currency is deliberately undervalued." A spokesman for the Chinese Embassy in Washington couldn't be reached for comment on Thursday afternoon.
TIME Magazine 1/23/2009
Trade hawks in Congress, pushed by union allies and some manufacturing lobbies in Washington, have long pined for this. But the Bush Administration resisted, preferring to fold the currency issue into the broader biannual "strategic economic dialogue" (SED) started by former Treasury Secretary Hank Paulson. That less confrontational setting was more likely to produce results on the currency issue than any forum that smacked of the U.S. putting Beijing on trial for "manipulation," the Bushies believed. In fact, over the past two years, the RMB did rise nearly 20% against the dollar.
Geithner's rhetoric before the Senate raises the question: Is the less confrontational approach now history? The short answer: in tone, perhaps. But in substance, not a whole lot is likely to change.
Discussion on Wikipedia: (Value of the renminbi - Chinese Currency)
For most of its early history, the RMB was pegged to the U.S. dollar at 2.46 yuan per USD (note: during the 1970s, it was appreciated until it reached 1.50 yuan per USD in 1980). When China's economy gradually opened during the 1980s, the RMB was devalued in order to reflect its true market price and to improve the competitiveness of Chinese export. Thus, the official RMB/USD exchange rate declined from 1.50 yuan in 1980 to 8.62 yuan by 1994 (lowest ever on the record). Improving current account balance during the latter half of the 1990s enabled the Chinese government to maintain a peg of 8.27 yuan per USD from 1997 to 2005. On 21 July 2005, the peg was finally lifted, which saw an immediate one-off RMB revaluation to 8.11 per USD.[18] The exchange rate against the Euro stood at 10.07060 yuan per Euro. The RMB is now moved to a managed floating exchange rate based on market supply and demand with reference to a basket of foreign currencies.
On 10 April 2008, it traded at 6.9920 yuan per U.S. dollar, which is the first time in more than a decade that a dollar bought less than seven yuan,[20] and at 11.03630 yuan per euro.
On 15 October 2008, the renminbi traded at 6.83170 yuan per U.S. dollar, which is a 21.8% increase and the highest rate since the removal of the peg. On the other hand, it traded at 9.19740 yuan per euro[21] , which corresponds roughly to the rate at the time of the lifting of the peg against the US-Dollar.
Purchasing power parity - Scholarly studies suggest that the yuan is undervalued on the basis of purchasing power parity analysis.
- The World Bank estimated that, by purchasing power parity, one United States dollar was equivalent to approximately ¥1.9 in 2004.[22]
- The International Monetary Fund estimated that, by purchasing power parity, one United States dollar was equivalent to approximately ¥3.462 in 2006, ¥3.547 in 2007, and had been expected to be equivalent to ¥3.694 in 2008.[23]
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