Beijing Pushes Back Against US Enforcement Demands In Currency Agreement

It is apparently China's turn to ramp up the bullish trade-deal talk. Though Larry Kudlow appeared on the Sunday shows to offer his boilerplate assurances that a deal would likely be completed by April 1, PBOC Governor Yi Gang offered more details about the talks during a press conference Sunday on the sidelines of the National Party Congress.

The central bank governor, who has been an influential voice in the ongoing negotiations, claimed that Washington and Beijing had come to an agreement on the thorny currency issue.


Yi Gang

While Washington had reportedly insisted that Beijing take steps to keep the yuan "stable" as part of any accord - presumably to prevent it from devaluing its currency to negate the impact of US tariffs, something that has probably taken on greater urgency following last weeek's trade-deficit number - Yi said that Washington had agreed to allow Beijing monetary policy as it does now - so long as the PBOC doesn't deliberately intervene in FX markets to devalue the yuan, which Beijing had already promised not to do by signing on to a G-20 communique a few years back.

"Both sides have reached consensus on many crucial and important issues," Yi said.

Yi said that both sides had agreed to respect the "autonomy" of their monetary policy, per WSJ.

Which shouldn't be a problem for the US, Yi said, because the PBOC's monetary policy is geared toward issues in its domestic economy, eliciting, we imagine, a few chuckles from skeptical economists, particularly when he insisted that "the exchange rate isn’t a major factor in domestic monetary policy."

Bloomberg offered a more complete account of Xi's comments, which showed that China had largely agreed to abide by preexisting standards and commitments.

"The two sides discussed issues on the yuan including the need to abide by previous commitments made by the G-20 nations including not to engage in competitive depreciation and to communicate closely on currency issues," Yi said at a press conference during the annual National People’s Congress legislative meetings.

"The negotiators discussed the necessity to respect the autonomy of each other’s monetary policy, a market-oriented foreign exchange mechanism and the disclosure of information according to International Monetary Fund standards," Yi added.

If Yi's characterization of the currency agreement is accurate, then it would represent a major triumph for Beijing. China avoided a broad currency-related commitment. As one Goldman analyst pointed out, promising not to undertake direct intervention doesn't preclude the possibility that Beijing could engage in indirect intervention (as many central banks do).

This would imply that the enforcement issue will be the biggest obstacle to a final accord. Remember, Robert Lighthizer's insisted that a lot of time had been spent "on currency" and that an enforceable agreement would be part of the final deal. And nearly two weeks after the initial tariff deadline, it remains unclear how this would work, since talks have largely foundered on a broader enforcement mechanism, as Beijing has demanded that the US simply trust it to keep its promises.

However, ultimately this might be a moot point: After a sharp depreciation against the dollar over the past year, Beijing has other incentives to stabilize the yuan, including maintaining economic stability at home.