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No Currency Manipulators Named in Treasury Report; Yuan Undervaluation Said to be Worse

Tuesday, April 16, 2013
By Shawn McCausland
Sandler, Travis & Rosenberg Trade Report

In its semiannual report on foreign exchange rate policies released April 12, the Treasury Department again declined to name China or any other major trading partner as a currency manipulator. Reviewing the exchange rate policies of ten economies accounting for 72% of U.S. foreign trade, the report finds that while all of the major advanced economies reviewed have fully flexible exchange rates there are many major emerging market economies, especially in Asia, that manage their exchange rates to varying degrees. Treasury asserts a need for greater exchange rate flexibility in these economies as well as greater exchange rate transparency and stronger discipline over actual and verbal interventions.

This report indicates that developments with respect to China since the last report was issued in November 2012 have been mixed. Treasury continues to state that the Chinese yuan is “significantly undervalued” but does not cite a more updated figure than the 5-10% reported last fall. The report finds that during the past five months the appreciation of the yuan against the dollar fell from 12.6% to 10 since China moved off its exchange rate peg in June 2010 but rose from 40% to 44.8% since China initiated currency reform in 2005. And while Treasury’s last report cited “a substantial reduction in the level of official intervention in exchange markets since the third quarter of 2011,” the new report asserts that “large-scale foreign exchange market intervention has resumed.”

With respect to other economies reviewed, Treasury makes the following observations.

- It remains important that Japan take fundamental and thoroughgoing steps to increase the dynamism of the domestic economy by easing regulations that unduly deter competition in its domestic economy.

- The U.S. will continue to press Korean and Taiwanese authorities to limit their foreign exchange interventions to the exceptional circumstances of disorderly market conditions and to commit to greater foreign exchange market transparency, including through the publication of intervention data.

- Brazil maintains a floating exchange rate regime but over the past year there have been increased official efforts to manage its currency.

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