US warns China over yuan depreciation and market intervention

PUBLISHED : Wednesday, 09 April, 2014, 1:40am
UPDATED : Wednesday, 09 April, 2014, 1:40am

The United States warned China on Monday that the recent depreciation of the yuan could raise "serious concerns" if it signalled a policy shift away from allowing market-determined exchange rates.

Washington has been pressing Beijing for years to allow its currency to trade at stronger values. A weak yuan makes Chinese exports cheaper for US consumers, at the expense of American manufacturers. It also makes Chinese consumers less able to buy foreign goods.

Last month, US Secretary of the Treasury Jack Lew welcomed a decision by Beijing to allow the yuan to vary more against the US dollar in daily trading.

Monday's comments by a senior official from the Department of the Treasury suggest Washington is not completely sold on Beijing's intention to reduce intervention in exchange markets.

"If the recent currency weakness signals a change in China's policy away from allowing adjustment and moving towards a market-determined exchange rate, that would raise serious concerns," he said.

In comments that outlined US positions before meetings later this week of the International Monetary Fund and between Group of 20 nations, he noted the widening of the yuan's trading band came just after a drop in its value that coincided with reports of "considerable intervention" in exchange markets by Beijing.

The US also appears likely to pressure Europe at the meetings to act more decisively to fix its troubled banking sector.

The official said recent economic data from Europe showed the region was experiencing "chronic low inflation and weak demand". That appeared to be a nod to growing concerns that Europe's economy was so weak it risked falling into deflation.

"More needs to be done to support growth," he said.

The official had blunt words for other economic powers as well, saying Japan should avoid engaging in too much fiscal austerity.

He also chided emerging markets for going too slowly in adopting free-floating currencies.

"Resistance in many emerging markets to moving more quickly to market-determined exchange rate regimes is hindering the rebalancing needed to ensure a lasting, strong global recovery," he said.