US labelling China currency manipulator is ‘absurd’, threatens global recession, warns adviser
- Yu Yongding, a fellow at the Chinese Academy of Social Sciences, said that the ‘US is trying to start a currency war’
- US Treasury Department made the decision after the yuan weakened below 7 to the US dollar on Monday
China being labelled a currency manipulator by the United States is “absurd” and “ridiculous” and increases the risk of a global recession, as the trade war evolves into a currency war, according to a senior Chinese government adviser.
“There’s a risk of a global economic recession even without the trade war, and an escalation of the trade war certainly amplifies such risks,” Yu Yongding, a fellow at the Chinese Academy of Social Sciences, told the South China Morning Post.
Yu, is consulted by Beijing on exchange rate policy, said the US decision was “absurd”. “It’s ridiculous to label [China] a currency manipulator simply because of one small exchange rate change in one trading day,” he added. “The US is trying to start a currency war, and it has rushed to find an excuse [to do so].”
The US Treasury Department justified its decision by citing China’s “concrete steps” in recent days to devalue its currency while maintaining substantial foreign exchange reserves.
“The context of these actions and the implausibility of China’s market stability rationale confirm that the purpose of China’s currency devaluation is to gain an unfair competitive advantage in international trade,” it said.
The decision came not long after a tweet by US President Donald Trump charging that China continued to engage in “currency manipulation”.
But China is unlikely to respond directly to being designated a currency manipulator, Yu said.
It’s ridiculous to label [China] a currency manipulator simpy because of one small exchange rate change on one trading day
“I don’t think China will take any countermeasures,” Yu said. “You really can’t announce the US is a currency manipulator – that’s impossible to do.”
Instead, China will stick to its goal of making the yuan exchange rate more flexible, he said.
People’s Bank of China (PBOC) governor Yi Gang said on Monday, hours before the US Treasury Department decision, that China’s exchange rate is determined by the market and that Beijing has no intention of using the yuan as a tool in managing the impact from international trade disputes.
Yi added that China will stick to the G20 commitment to refrain from competitive devaluation, but the US Treasury charged that China had already violated its commitments to that international forum of 19 countries and the European Union.
I don’t think China will take any countermeasures. You really can’t announce the US is a currency manipulator – that’s impossible to do
The yuan exchange rate is heavily influenced by China’s central bank, which sets a daily central parity, above and below which the yuan is allowed to fluctuate by 2 per cent. In setting the central parity, the central bank uses a “countercyclical factor” – the exact contents of which have not been publicly disclosed – to direct exchange rate movement in a preferred position.
The PBOC also occasionally intervenes in the foreign exchange market to prevent excessive fluctuations.
China’s efforts of keeping the yuan relatively stable, compared to other emerging market currencies such as the Russian rouble or the Turkish lira, has been cited repeatedly by Beijing as evidence that China is a responsible manager of its currency.
