Treasury Again Says China Not Currency Manipulator, RMB Remains Undervalued
On May 25, 2012, the Treasury Department issued its semiannual "Report to Congress on International Economic and Exchange Rate Policies," which reports, among other things, that China is not manipulating its currency, but the appreciation of the renminbi (RMB, or yuan) to date is insufficient. Treasury said it will closely monitor the pace of the RMB's appreciation and press China for policy changes that yield more exchange rate flexibility, a level playing field, and a sustained shift to domestic demand-led growth.
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The report said that after Chinese authorities decided in June 2010 to allow the exchange rate to appreciate in response to market forces, the renminbi has appreciated by a total of 8% against the dollar. Taking into account the higher rate of domestic inflation in China than the U.S., the RMB has appreciated against the dollar on a real, inflation-adjusted basis of 12.5% since June 2010, and about 40% since China first initiated currency reform in 2005. In 2012, through May 15, the RMB has been virtually flat against the dollar, said Treasury, depreciating by 0.36%.
(While China’s real exchange rate has appreciated, Treasury said the process of appreciation remains incomplete. China’s long-standing pattern of reserve accumulation, the persistence of its current account surplus and the incomplete appreciation of the renminbi, especially given rapid productivity growth in the traded goods sector, indicate the real exchange rate of the renminbi is persistently misaligned and remains substantially undervalued.)
(See ITT's Online Archives 11122804 for summary of Treasury's December 28, 2011 semiannual Currency Report, which also found that China was not manipulating its currency but that it was substantially undervalued. Note that these reports cover the exchange rate policies of China as well as nine other economies accounting for 70% of U.S. foreign trade.)
Treasury's May 25, 2012 press release is available here.