Treasury Releases FX Manipulation Report: Says China Must Allow Yuan To "Rise With Market Forces"

Tyler Durden's picture

While Donald Trump already spoiled the surprise of the contents of the latest semiannual report from the Treasury on currency manipulation, when on Wednesday he told the WSJ that China would not be named a currency manipulator, moments ago the US Treasury confirmed just that when it published the long awaited report on "Foreign Exchange Policies of Major Trading Partners of the United States" which while keeping the same six countries - China, Japan, Korea, Taiwan, Germany, and Switzerland - on its manipulation monitoring watch list, it said no major trading partner met the criteria to be designated an FX manipulator:

Pursuant to the 2015 Act, Treasury has found in this Report that no major trading partner met all three criteria for the current reporting period. Similarly, based on the analysis in this Report, Treasury also concludes that no major trading partner of the United States met the standards identified in Section 3004 of the Omnibus Trade and Competitiveness Act of 1988 (the “1988 Act”) for currency manipulation in the second half of 2016.

This confirms what Trump said previously, when he reverse on his campaign promise, and said China hasn’t manipulated the yuan for months, while accusing unidentified nations of devaluing their currencies and saying the dollar is getting too strong.

That said, while the US declined to label China a currency manipulator, the report appeared to toughen the language involving the world's second-largest economy , urging Beijing to buy more American goods and services and reduce its trade imbalance, while allowing the Yuan to "rise with market forces."

According to the report, "China currently has an extremely large and persistent bilateral trade surplus with the United States, which underscores the need for further opening of the Chinese economy to American goods and services, as well as faster reform to rebalance the Chinese economy toward greater household consumption."

The report also said that China "has a long track record of engaging in persistent, large-scale, one-way foreign exchange intervention, doing so for roughly a decade to resist renminbi (RMB) appreciation even as its trade and current account surpluses soared. China allowed the RMB to strengthen only gradually, so that the RMB’s initial deep undervaluation took an extended period to correct."

The Treasury then said that the "distortion in the global trading system resulting from China’s currency policy over this period imposed significant and long-lasting hardship on American workers and companies" and came rather close to accusing China of FX manipulation by way of limiting market access in setting the fair value of the currency:

"China continues to pursue a wide array of policies that limit market access for imported goods and services, and maintains a restrictive investment regime which adversely affects foreign investors." The Treasury also urged "further opening of the Chinese economy to U.S. goods and services as well as faster implementation of reforms to rebalance the Chinese economy toward greater household consumption would aid in reducing the bilateral imbalance."

In a notable departure from previous reports, the latest version said that to remain on the Treasury's good side, China has to "demonstrate that its lack of intervention to resist appreciation over the last three years represents a durable policy shift by letting the RMB rise with market forces once appreciation pressures resume."  That, of course, is the key highlight because as Beijing is all too aware, over the past three years China has burned nearly $1 trillion in reserves to prevent the Yuan from depreciating too rapidly, and to keep the pace of capital outflows from rising too high.

As Bloomberg further notes, like the last report by the Obama administration in October, China met only one of the three criteria - for having a large trade deficit - that’s used by the Treasury as a threshold for manipulation. China’s $347 billion goods trade surplus with the U.S. in 2016 was the largest of major trading partners last year, according to the report, which also observed that the surplus "has also declined by only 5 percent in 2016 from its peak in 2015."

Going back to previous boilerplate language, the report also said that the "Treasury will be scrutinizing China’s trade and currency practices very closely, especially in light of the extremely sizable bilateral trade surplus that China has with the United States" and that it "places significant importance on China adhering to its G-20 commitments to refrain from engaging in competitive devaluation and not to target China’s exchange rate for competitive purposes."

It concludes by stating that "Treasury also places high importance on greater transparency of China’s exchange rate and reserve management operations and goals." Oddly enough, investors, economists and pundits who obsess over China's economy, and respond to every goalseeked wiggle in its "data" are far less worried about the "data" that comes out of Beijing.

Aside from China, Taiwan also met one manipulation condition, while the other four met two. Some of the additional highlights via Bloomberg:

  • The U.S. will watch South Korea FX closely, with the Treasury urging more flexibility; The US estimates S. Korea was a net FX seller in 2016 of $6.6 billion, or 0.5% of GDP
  • Taiwan was urged to limit intervention to disorderly markets
  • Stronger German domestic demand would underpin euro
  • Regarding Switzerland, the TSY said Swiss interventions should be more transparent

Finally, the report said that “the United States cannot and will not bear the burden of an international trading system that unfairly disadvantages our exports and unfairly advantages the exports of our trading partners through artificially distorted exchange rates."

And while the Treasury said it was "committed to aggressively and vigilantly monitoring and combating unfair currency practices" it has yet to demonstrate the latter.

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Full Treasury report below (link)

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Jim Sampson's picture

Pot, meet Kettle.

Raffie's picture

China needs to show how much gold they really have and repeg the gold.

$10k oz would be great for starters.

knukles's picture

What the fuck; might as well piss everybody off all at once.
Actually, might just work.  Or not.

BennyBoy's picture


USA #1 currency manipulator.

Ask, no, watch the FED. They are full of shit.

theliberalliberal's picture

So USA needs china to buy their new debt (when this debt ceiling is lifted) but also wants them to sell us holdings to increase Yuan value. How does that work again?

NoDebt's picture

China has burned through a TRILLION dollars worth of their reserves in the last couple years SUPPORTING the yuan's value against the Dollar.  And yet somehow allowing the Yuan to appreciate will magically happen by market forces????

Not in this case, gentlemen.  Word is out.  China is completely full of shit.  Economy is nowhere near as strong as they say.  Debt (and what it was used for) makes other debt ponzi nations like the US look like Mother Theresa by comparison.  Every new Chinese billionaire's to-do list is topped with "get my wealth the fuck outta China as fast as possible".

This is a laughably transparent new low in "beggar thy neighbor" monetary policy.  This time perpetrated by the US against China, not the other way around.  


pitz's picture

They've been divesting their reserves to buy useful overseas assets.  Not using them to 'defend' anything. 

When you save a bunch of money, and decide to spend it on a new car, does anyone say that you're 'defending' your personal currency by doing so?  Of course not.  That's a bunch of complete nonsense.  There is no evidence whatsoever that China is selling USD$ to buy Yuan, which would be what 'defending the Yuan' would imply.  The Yuan, if anything, is very weak because of the incredible expansion in credit in China.  As that credit expansion slows/stops, the Yuan will become extremely strong.

spag's picture

**China has burned through a TRILLION dollars worth of their reserves in the last couple years SUPPORTING the yuan's value against the Dollar.  **




China dumped a trillion dollars denominated tiolet paper before anyone else.

sinbad2's picture

If China admitted they had 20,000 tons of gold, the US dollar would fall into the swamp.

China wants to keep the dollar high, because they make a lot of money that way.

The US forced Japan to raise the value of the Yen in 1985, and it destroyed the Japanese economy. China doesn't want to end up like Japan, it wants to end up like the USA.

TheSilentMajority's picture

Its not April 1 anymore. Must be a joke, but Its not even funny.

moneylover3's picture

No money in treasur(e)y for main street

Grandad Grumps's picture

Lol... or else what? They are going to hold their breath and turn blue?

Don Pancho's picture

Why do we as taxpayers put up with this filth?  





Bay of Pigs's picture

371.25 fine grains of pure silver to be exact. Just under .80 of a troy ounce.

Brazen Heist's picture

Fiat is more convenient for them. You see, having gold and silver backing would mean spending caps and a limit on debt. 

They want unlimited debt and spending. The only way to bring this beast to its knees is if a viable alternative reserve currency arises, such as a gold backed Yuan or something. As soon as that rolls out, investors will be onto it and dump the dollar.

It's the lack of alternatives thats holding the dollar up - plain and simple.


AGuy's picture

"Why do we as taxpayers put up with this filth?"

Because more than half of the population is directly or indirecty on the gov't dole! Gov't can't print money to hand out gov't checks if the peg to PMs.

Also consider than only a small minority own PMs.

You might have better luck pegging the dollar to ammo & guns. There are more guns in private ownership than citizens and US about 4% of US GDP is defense spending.

DoctorFix's picture

Telling the Chinese that their currency needs to be manipulated by the world's chief "manipulators" is some kind of a hoot.  I nearly spat out my coffee reading this.  I'm sure the fed wouldn't mind one bit if the world decided to trade in gold and other currencies... seeing as they're all for free trade, free from the tyranny of the petrodollar...NOT!

omi's picture

"If you (China) don't do this, then we( USA) are bankrupt!"

SteveK9's picture

China would be smart to let the Yuan float, rise in value and purchase good from America.  Their standard of living would rise.  To maintain a trade surplus forever is idiotic.  How many zero's do they want in their Fed account?

earleflorida's picture

from the looks of it :: 5 x 10(11)    

GETrDun's picture

Trump has folded like a cheap lawn chair.

unklemunky's picture

Really? What? Because he is not a Rand Paul- Boorack OBlabla pussy? He showed the rest of the world he is not afraid to drop the fucking hammer and you think he has folded? What a dumbfuck. You pop those unruly fuckers in the own back yard and let the rest of the world see it. The ROI is through the roof. So we spend a few hundred million to bomb Syria and the ragheads. It's already paying dividends. So put your man pants on. We're taking control of this mofo again.

Bernie Madolf's picture

Ummm pboc has been intervening to support the yuan. They seem especially determined to defend the usd/cnh 7 handle

From weds:

Or when they brought out the hammer in January:

I suspect this is a "look over there, not over here" report.

Any country with a central bank that sets a funds rate is by definition a currency manipulator.

Brazen Heist's picture

The Yuan is obviously undervalued. 

They're biding their time and stacking gold in the meanwhile.

One day, they will dump the peg and liquidate FX reserves. It will be bearish on the dollar.

That's when the dragon will be ready to compete against the reserve currency.

unklemunky's picture

The only problem is that China is trusted less than the US. If you think the planet is going to trust reserve currency status to a communist regime you, my friend, are a crack smoker. The reason the US has reserve currency status is because we can kick the rest of the worlds ass without blinking an eye..... on our worst day. Plus, we have the worlds most powerful economy so it makes perfect sense the USD is reserve. So, go all in on the China reserve boondoggle and see where it gets you.

sinbad2's picture

"The only problem is that China is trusted less than the US"


That isn't true, China is seen as more trustworthy than the US.

They are hard businessmen, but once they strike a deal they stick to it.

The US, well it depends on who is in power at the time.

Putin made a well received speech about how the US breaks agreements, the Iran deal is a perfect example of the US promising something, and then not doing it.

The Dogs of Moar's picture


The reason the US has reserve currency status is because we can kick the rest of the worlds ass.


The reason the US has reserve currency status is because we can print trillions of dollars a day

and hand them out to central bankers ad lib.  



sinbad2's picture

Because all countries need US dollars to trade, the US has trillions of other currencies.

The US gets the other currencies for free, because it just prints US dollars out of thin air.

When the US wants to devalue another currency, it just dumps that currency on the market, like it did with the ruble, it costs the US nothing, because it paid for the rubles with nothing.

The only way a country can defend itself against the US trashing its currency, is to have more US dollars than the US has of its currency.

That's why China is immune to US threats, it has over a trillion US dollars it can dump on the market, and it prevents the US buying Yuan. It also invests excess liquidity in gold. 

That's why Russia is increasing it's gold reserves as a percentage of its FOREX reserves.

It doesn't matter what the US says about the Yuan, China is immune to all but military threats from the US. That's probably why Trump is threatening to start a war in Korea, to pressure China to revalue the Yuan.

emersonreturn's picture

thanks sinbad2 that explains a lot.

The Dogs of Moar's picture

China Must Allow Yuan To Rise.


     Has anybody told Kyle Bass?

skipweston's picture

The Federal Reserve:

Destroying the Dollar and American's Savings since 1913.

Manipuflation's picture

Where did Yen Cross go? 

honestann's picture
Treasury Releases FX Manipulation Report: Says USA Must NOT Allow Gold and Silver To "Rise With Market Forces".

Enough said.

K_BX's picture

Maybe someone hasn´t noticed yet, but there is capital flight out of China - anyways, it is all fun and games until China discoveres, that all that promises made will not be met...