MercoPress. South Atlantic News Agency

US intensifies pressure on Chinese Yuan

United States called on China to reform its “distorting” exchange rate policies and warned that Beijing could be accused of currency “manipulation”.

Critics in the US claim the value of the Chinese yuan or renminbi is 40% lower than it should be and that this seriously disadvantages US firms by making Chinese exports cheaper. US trade deficit with China rose to 162 billion US dollars last year.

For the last two years United States has consistently pressed on Beijing authorities the need for a flexible exchange rate and ending the current ten year old system which has the Chinese yuan pegged at 8,28 to the US dollar enabling China to accumulate massive trade surpluses.

To keep the system going China has become one of the leading purchasers of US Treasury bonds and US assets which have helped balance the US trade deficit. Last year Central banks from China and other Far East countries contributed to finance two thirds of the US trade deficit which amounted to a record 617 billion US dollars.

The US Treasury Department said China was in danger of being censored for manipulating its currency if it did not free up its exchange rates.

While stopping short of accusing China of unfair currency practices, it urged the Chinese government to move "without delay" to make the yuan more flexible.

"While China's ten year long pegged currency regime may have at times contributed to stability, it no longer does so" the report said. "Current Chinese policies are highly distorting and pose a risk to China's economy, its trading partners and its global economic growth."

However, at a press conference on Tuesday US Treasury Secretary John Snow emphasised that the US government was not calling for an immediate free flotation of the yuan. "This would be a mistake at this time," he said. "China's banking sector is not prepared."

China has also come under pressure from other Asian countries including Japan to adjust its currency system.

Beijing has urged patience, arguing that it needs to reform its banking systems before proceeding with such a move. Earlier this month the head of the central bank refuted a suggestion in the state newspaper, the People's Daily, that the value of the yuan would soon be increased.

If US authorities determine that according to federal law China has an unfair trade advantage several steps can be taken leading to reprisals if Beijing does not collaborate.