Please Don’t Manipulate the Renminbi

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Begging, borrowing or other means. Whatever it takes the US is prepared to get what it wants. Unable to get it any other way because of real clout, the US has resorted to begging these days. The US has asked the Chinese not to go back to manipulating their currency. The Renminbi has been depreciating since the start of the year and the US fears that they might return to old habits. Certainly old habits die hard, don’t they?

A senior Treasury official stated “If the recent currency weakness signals a change in China's policy away from allowing adjustment and moving toward a market-determined exchange rate, that would raise serious concerns.”

In just the space of a few weeks the Renminbi has fallen by 2.5% (since the second half of February 2014) against the Dollar. That’s surprising in itself since the Chinese currency has done very little except steadily grow over the past few years against the Dollar.

Emerging economies might have seen their currencies depreciate against the Dollar in past months due to tapering and the withdrawal of investment in their economies, but for China it’s out of character that there should be such a drop. The Renminbi currently stands today at 6.196859 against the Dollar. We are seeing the appreciation of the past year being wiped of the value of the Renminbi today.

We know that the Chinese economy is slowing down and seeing greater difficulty for the new administration to meet the target of 7.5% GDP for this coming year. The World Bank has already cut the economic outlook for the country and some are saying that China will do no more than 7.3% in GDP this year. What is irking Washington is that the Chinese might just choose to hold down the currency so that exports are boosted. It would have little choice but to engineer a low Renminbi, given the sorry state of affairs in the EU and the emerging markets suffering from tapering. The People’s Bank of China has the ability to move the currency through a fixing rate every day, directly intervening on it. Thus, with the widening of the official trading band it can trade 2% higher or lower at will.

The US administration would clearly like to see the Chinese moving away from reliance on investment and exports and thus secure long-term prospects of growth via consumption. Of course, the US administration would like to see that. It would open up the prospect of increasing exports for the US. The Chinese are hardly going to agree to that. Beg on Treasury for the Chinese not to engineer their currency. But, what has the US been doing all along with Quantitative Easing?

Washington has been asking China for years now to allow the Renminbi to trade at stronger values so that competition for exports is better. It is doubtful if firstly the US is actually in a position to warn others to play the game by the rule book and secondly whether or not the Chinese will hear the warning.

The G20 meetings taking place on April 10th 2014 will have little room for discussion about the Renminbi or engineering low currencies; not while Ukraine is at the top of the agenda and Russia’s role in Crimea. Then, there will have to be a discussion about the state of affairs of the EurozoneGreece and the debt situation as well as unemployment…and so the list goes on. What is it they say about needing to flood the public with bad news, so they don’t see exactly what you want to hide from them?

Originally posted: Please Don’t Manipulate the Renminbi

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