US Prods China on Currency Policies
Hao Ren | | Apr 08, 2014 04:59 AM EDT |
The United States has issued a warning to Beijing on rising "serious concerns" that the recent depreciation of the Chinese yuan may signal a shift away from an exchange rate determined by market forces.
Washington has been pressuring Beijing to allow the yuan to trade against stronger values. At present, the yuan is kept weaker against the US dollar.
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With the yuan weaker against the dollar, Chinese exports would be cheaper at the U.S. markets, and Chinese consumers will in turn face higher prices of foreign goods.
United States Treasury Secretary Jack Lew praised the decision of Beijing to allow the yuan to relax its daily trading against the American greenback.
However, sources from the Treasury department say the United States is not entirely believing reports that Beijing has minimized its interventions in the foreign exchange markets.
A U.S. finance official noted the expanding gap of the Chinese currency trade band immediately after a downtrend in the value of yuan, when reports came out stating "considerable intervention" was being made by Chinese authorities.
This kind of action is what Washington primarily wants Beijing to avoid doing.
During this week's meeting of the International Monetary Fund and the Group of 20 nations, the Treasury hinted that Washington will likely pressure its European allies to decisively act on resolving its troubled banking sector.
Latest economic data coming from Europe indicates a "chronic low inflation and weak demand," an indicator of a weakening european economy, at a risk of going into a deflation that results into sharp drops in wages and prices.
The Treasury official is suggesting that more support will be needed. The U.S. is also stating that Japan should ease its austerity measures.
On the Russian front, the economic sanctions against Moscow is already casting undesirable effects as a result of the annexation of Crimea into the Russian Federation.
The same official is also prodding emerging markets to hasten their adoption of free-floating currencies. He adds that this reluctance and slow action hinder a lasting and strong global economy.
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