Refraining yet again from branding China as a currency manipulator, the US on Tuesday said Beijing is not doing enough with regard to the value of its currency, which it noted is putting the American dollar at a disadvantage.
“While China’s real exchange rate has appreciated, the process of appreciation remains incomplete,” the Department of Treasury said in its six-monthly report to US Congress.
“China’s long-standing pattern of reserve accumulation, the persistence of its current account surplus and incomplete appreciation of the renminbi, especially given rapid productivity growth in the traded goods sector, indicate that the real exchange rate of the renminbi is persistently misaligned and remains substantially undervalued,” the report said.
The Treasury said it is in China’s interest to allow the exchange rate to continue to appreciate, both against the dollar and against the currencies of its other major trading partners.
A lack of continued appreciation by China would prevent the exchange rate from serving as a tool to encourage consumption so as to maintain strong and sustainable growth and would further complicate the adjustment needed for broader financial sector reform and undermine China’s stated goal of strengthening domestic demand, it warned.
The Chinese leadership has identified shifting away from growth driven by exports toward a greater reliance on domestic consumption as a critical goal for sustaining growth in the medium term, it said.
At the G-20 Leaders Summit in Cannes in November, G-20 members, including China, committed to “move more rapidly toward more market-determined exchange rate systems and enhance exchange rate flexibility to reflect underlying economic fundamentals, avoid persistent exchange rate misalignments and refrain from competitive devaluation of currencies.”
China also stated that its rebalancing actions “will be reinforced by ongoing measures to promote greater exchange rate flexibility to better reflect underlying economic fundamentals and gradually reduce the pace of accumulation of foreign reserves,” the report said.
According to the report, since the authorities decided in June 2010, to allow the exchange rate to appreciate, the renminbi has appreciated by a total of 7.5 per cent against the dollar, as of December 16.
“Taking into account the higher rate of domestic inflation in China than in the US, the renminbi has appreciated against the dollar on a real, inflation-adjusted basis by nearly 12 per cent since June 2010, and nearly 40 per cent since China first initiated currency reform in 2005,” it said.