The Treasury Department caved into pressure and delayed its decision to label China as a currency manipulator. The Administration decided to defer the decision instead of sending a report to Congress which accused the Chinese of bad faith in their actions to make the value of the yuan more reasonable. The report  was to be sent to Congressional committees today.

Secretary of the Treasury Timothy Geithner recognized China’s actions since early September to accelerate the pace of currency appreciation, while noting it is important to sustain this course.
Since June 19, 2010, when China announced it would renew the reform of its exchange rate and allow the exchange rate to move higher in response to market forces, the Chinese currency has appreciated by roughly 3 percent against the U.S. dollar. Since September 2, 2010, the pace of appreciation has accelerated to a rate of more than 1 percent per month. If sustained over time, this would help correct what the IMF has concluded is a significantly undervalued currency.

Added:

The Heads of State, finance ministers, and central bank governors of the G-20 and the Asia-Pacific region will participate in several important meetings over the coming weeks. These meetings provide an opportunity to make additional progress on the important challenge of securing stronger and more balanced growth.
The Treasury will delay the publication of the report on international economic and exchange rate policies in order to take advantage of the opportunity provided by these important meetings.

The Administration made a similar decision in April and May when it appeared that Secretary Geithner had made progress in the yuan exchange rate when he visited China in April. The People’s Republic decided to do next to nothing, and eventually began to defend its decision to allow the yuan to adjust only very slowly.

Trade deficits between the US and China have caused the problem of the yuan’s value to become more acute. That makes the Treasury’s action to defer the “manipulation decision” all the more perverse.

Douglas A. McIntyre

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