Currency war
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US dollar and Chinese yuan notes are seen in this picture illustration from June 2017. Photo: Reuters

New IMF report doesn’t back Donald Trump’s currency manipulation charge against China

  • Review shows Beijing actually took steps last year to prop up yuan after it declined against dollar between mid-June and early August
  • Analysis comes just days after US Treasury formally designated China as a currency manipulator
Currency war

This story is published in a content partnership with POLITICO. It was originally reported by Doug Palmer on on August 9, 2019.

The International Monetary Fund on Friday provided little or no support for US President Donald Trump’s assertion that China is manipulating its currency for an unfair trade advantage.

In an annual review of China’s economic policies, the IMF said Beijing actually took steps last year to prop up the value of its currency after the renminbi declined against the dollar between mid-June and early August 2018.

Overall, the currency “was broadly stable” over the past year, depreciating by just 2.5 per cent against a basket of foreign currencies used as a benchmark, the IMF said.

The analysis came just four days after US Treasury Secretary Steven Mnuchin made the surprising announcement that he had formally designated China as a currency manipulator under US law – a decision that was widely seen as ratcheting up the US-China trade war.

Mnuchin took that step after the People’s Bank of China allowed the managed exchange rate to depreciate beyond seven yuan to the dollar for the first time in 11 years.

A weaker currency gives China an export advantage by reducing the price of its goods for foreign buyers. It also has the effect of discouraging imports by increasing their costs.

The Chinese central bank’s decision followed Trump’s announcement last week that he was imposing a 10 per cent tariff on another US$300 billion worth of Chinese goods effective September 1. That put downward pressure on the value of the renminbi, the official name of China’s currency, which is denominated in yuan.

So the US Treasury called China a currency manipulator. Now what?

Since then, the currency has fluctuated around the seven-to-the-dollar rate. On Friday, China's central bank set the official midpoint reference for the yuan at 7.0136 per dollar – the weakest level since April 3, 2008.

The US decision to label China a currency manipulator was “foolhardy”, Mark Sobel, a former Treasury Department official who is US chairman of the Official Monetary and Financial Institutions Forum, said this week on the group’s webpage.

“The Trump administration now argues that because China is not acting to prop up its currency in the face of downward market pressures, China is guilty of ‘manipulation’,” Sobel said.

US Treasury Secretary Steve Mnuchin speaks to members of the media at the White House in July. Photo: AP

“Put differently, it seems as if the Trump administration is designating China because it wants China to ‘manipulate’ its currency up, rather than let it fall in response to market forces set off by the president’s own tariff pronouncements,” Sobel continued.

Trump, who earlier this week urged the Federal Reserve to cut interest rates to weaken the dollar, kept up his attack on Friday on China’s currency practices.

“We called them on manipulation and they brought their numbers back and they brought them back rapidly and they were able to do that because they manipulate,” Trump said. “It's called monetary manipulation. Not good.”