China’s currency remains “significantly undervalued” but the United States Treasury Department opted against declaring the nation that holds a massive amount of America’s debt as a currency manipulator. The Wall Street Journal considers the decision an act which avoided a public display that could cause a disruption in diplomatic relations between the two countries.
In a semiannual report focusing on global exchange rates released on Tuesday, the Treasury Department noted that Beijing has “substantially reduced” its market interventions in order to manage the value of the yuan. The report also states that the Chinese currency intervention, which began during the third quarter of last year, was initiated by officials to “liberalize” capital controls, Bloomberg Businessweek notes.
The yuan as reportedly appreciated by 12.6 percent against the dollar after adjustments for inflation were factored into the equation. The US Treasury Department reportedly feels that Beijing needs to allow greater flexibility in its exchange rate.
A statement from the Treasury reports reads:
“The available evidence suggests the [yuan] remains significantly undervalued, and further appreciation of the [yuan] against the dollar and other major currencies is warranted.”
A multitude of American lawmakers and some unions have voiced their opposition to the way Beijing manages the value of the yuan. Those who feel than China should be labeled a currency manipulator reportedly believe that keeping the Chinese currency lower than what it would be if determined by the markets permits Beijing to export goods as a substantially cheaper rate.
United States lawmakers would have to initiate formal talks with China to officially label the nation as a currency manipulator. Such action would not require the imposition of penalties or trade actions. Some fiscal analysts have warned that labeling the country a currency manipulator could spark a trade war.