China Again Avoids Manipulator Tag

U.S. Chooses Strategy Of Diplomacy

YuanThe U.S. Treasury Department passed on labeling China a currency manipulator this week in its latest semi-annual report to Congress, choosing a strategy of diplomacy instead of confrontation with Asia's largest nation. China's currency, the yuan, has gained 12.6% in real terms against the dollar since 2010, but "remains significantly undervalued" and needs to appreciate further, the Treasury said.

In a statement, Treasury officials acknowledged China "has substantially reduced the level of official intervention in exchange markets since the third quarter of 2011." In deciding not to brand China a manipulator, the Treasury highlighted the Chinese government's recent "steps to liberalize controls on capital movements, as part of a broader plan to move to a more flexible exchange-rate regime."

While it has been the policy of the Obama administration – unofficially or not – to refrain from using the manipulator tag, critics argue China is deliberating and artificially depressing the yuan to make its products less expensive in overseas markets. "This report all but admits China's currency is being manipulated, but stops short of saying so explicitly," said Senator Chuck Schumer (D-NY). "The formal designation matters because there can be no penalties without it. It's time for the Obama administration to rip off the Band-Aid, and force China to play by the same rules as all other countries."

The U.S. hasn't designated another nation a currency manipulator in 18 years, when it named China.