China’s yuan policy lets Fed set its interest rates: Geithner
More flexible stance likely as yuan peg limits its monetary policy options
15 April 2010
US Treasury Secretary Timothy Geithner said China is likely to move toward a more flexible currency because its practice of pegging the yuan to the dollar limits the Asian nation’s ability to conduct monetary policy.
‘As a strong, large, independent, growing economy, it doesn’t make sense for that country to run a monetary policy exchange-rate regime that effectively lets the Federal Reserve set interest rates for their economy,’ Mr. Geithner said at an American Society of News Editors conference in Washington on Tuesday.
‘That’s why I think – why I’m confident that they’re going to move.’
President Barack Obama this week urged China’s President Hu Jintao at a Washington meeting to move to a ‘more market- oriented’ exchange rate. China’s official Xinhua News Agency cited President Hu as saying the country wouldn’t yield to outside ‘pressure.’
The Obama administration ‘will be very forceful and aggressive in making sure we are promoting changes’ in China, Mr. Geithner said.
US lawmakers say the yuan peg, at about 6.83 to one dollar since July 2008, gives Chinese exporters an unfair advantage, and they have urged the Obama administration to increase pressure on China to change the policy. The US ran a US$227 billion trade deficit with China last year.
A Bloomberg News survey of 19 analysts forecasts China may allow the yuan to appreciate by June 30 to help curb inflation.
Separately, New York University economist Nouriel Roubini said China would allow its currency to start appreciating gradually, possibly starting as early as May.
Mr. Roubini said China would limit the yuan’s appreciation to 3 per cent or 4 per cent a year due to the economic slowdown and rising social tensions.
The move would be enough to allow the Obama administration to say its efforts were paying off, he said yesterday on Bloomberg Television’s ‘InBusiness with Margaret Brennan.’
‘It’s not at all a game changer, absolutely, but politically that’s the maximum that China can do,’ Mr. Roubini, who predicted the global financial crisis, said in New York.
The move would ‘allow at least the US to signal there is some movement and prevent the US from declaring China as a currency manipulator.’