China Accused of Manipulating CurrencySaturday, January 24, 2009 10:03
The first shot from the Obama team, in what could be a new protectionist battle between US and China, has been fired.
According to Tim Geithner, Barack Obama’s choice as the next treasury secretary, Obama believes that China has been manipulating its currency. The post of Geithner is expected to be officially confirmed within days. Besides, according to the former head of the Federal Bank of New York, Obama will probably use “all the diplomatic avenues open to him” to push for changes in China’s currency practices.
The yuan has strengthened against the dollar ever since 2005, when China stopped pegging the currency. From about eight yuan to the dollar in 2005, it was trading at 6.84 earlier today. The rise has pushed up the cost of Chinese exports overseas. While it is an open secret that China does take steps to manage the value of its currency, analysts have warned that Geitner’s comments will risk disrupting the delicate balance between the two countries.
Being a huge market for Chinese products, US has already suffered from the current economic slump. The flow of goods from east to west has meant China built up huge reserves of dollars and holds more US government debt, in the form of Treasury notes, than any other country. The prospect that China might respond via selling some these assets off triggered a further drop in the value of long-term US treasuries on Thursday.
So far, there has been no official response from the Chinese government to these comments.
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