Leadership

US Treasury says Chinese yuan is undervalued

16.10.2009
The US Treasury has criticised the Chinese Government for what it sees as a lack of flexibility in the Chinese currency, the yuan.

In its Semi-Annual Report to Congress on International Economic and Exchange Rate Policies published yesterday, the US Treasury also said that China’s renewed accumulation of foreign exchange reserves risks unwinding some of the progress made in reducing global imbalances when stimulus packages are eventually withdrawn and demand by China’s trading partners recovers.

Both of the rigidity of the yuan and China’s reacceleration of reserve accumulation are “serious concerns” that should be corrected to help ensure a stronger, more balanced global economy, the US Treasury said.

It also said it believes the yuan is undervalued and said that it would continue to work with China to pursue policies that “permit greater flexibility of the exchange rate and lead to more sustainable and balanced trade and growth”.

According to the Treasury, the yuan has appreciated 21.2pc against the dollar in the past four years.

However, despite its criticisms of the yuan, the Treasury did not go so far as to declare China a currency manipulator.

Global imbalances ease
The Treasury also noted in its report that global imbalances have fallen sharply during the economic crisis from a peak of 5.9pc of world GDP to an IMF-estimated 3.6pc in 2009.

Some of the correction in global imbalances is the result of cyclical factors and may be reversed as the global economy recovers. However, some is also structural, the Treasury said.