In unusually pointed language, the U.S. Treasury on Tuesday warned China and Japan that it is closely watching them out of concern they may be intentionally depreciating their currencies to gain an advantage in trade with U.S. competitors.
In its twice-yearly report to Congress on exchange rates, the Treasury Department stopped short of accusing either of the Asian countries of illegally manipulating their currencies, but it nevertheless delivered the strongest warning yet against doing so.
China’s currency, the renminbi or yuan, has fallen against the dollar this year after several years of upward gains that had eased concerns on Capitol Hill that Beijing was intentionally devaluing to make its products cheaper and easier to sell in the U.S.
China accomplishes that by using the dollars it earns selling exports to the U.S. to purchase U.S. Treasury securities, thereby propping up the value of the dollar and making U.S. goods relatively more expensive.
“China’s currency appreciated on a trade-weighted basis in 2013, but not as fast or by as much as is needed,” the Treasury said in its report, noting that “large-scale intervention has resumed, and so far this year the currency has reversed the appreciating trend.”
These developments “would raise particularly serious concerns if they presage renewed resistance to currency appreciation and a retreat from China’s announced policy of reducing intervention and allowing the exchange rate to reflect market forces,” the department said in its report.
“The Treasury Department will continue to carefully monitor China’s exchange-rate regime and the path of China’s currency and will press for further policy changes consistent with market determination of the exchange rate and transparency with respect to intervention,” it said.
While the Treasury took a dark view of China’s recent record on its exchange rate, the International Monetary Fund recently offered a more understanding view of China’s currency policy, saying a move by China’s central bank last month to allow wider day-to-day fluctuations of the yuan — which accelerated the yuan’s depreciation — was aimed at curbing one-way bets in favor of the currency by foreign exchange traders.
Chinese officials have said the yuan is approaching its open-market value, reflecting the country’s declining trade surpluses. Chinese central bank Vice Governor Yi Gang told analysts in Beijing last month that the country’s exchange rate”will be more and more determined by the market.”
Japan’s currency also has fallen significantly against the dollar since the government of new Prime Minister Shinzo Abe launched a major economic-stimulus program last year, raising concerns among U.S. auto manufacturers and other businesses that Tokyo also had resumed its attempts to gain a trade advantage.
While not going into as much detail about Japan, the report warned that the “Treasury Department will continue to closely monitor Japan’s policies” with an eye toward ensuring that Japan’s stimulus measures are aimed at increasing consumer demand in Japan, rather than boosting exports to the U.S.