Alan Beattie and James Politi, “US welcomes loosening of renminbi peg”

US welcomes loosening of renminbi peg, Financial Times

By Alan Beattie and James Politi in Washington

Published: July 9 2010 02:39 | Last updated: July 9 2010 02:39

The US declined to name China as a currency manipulator in a politically sensitive report on Thursday, citing Beijing’s loosening of the renminbi peg in June as “a significant development”.

The report had been delayed from April as part of a process of quiet diplomacy to encourage China to allow some flexibility in the exchange rate.

The renminbi, which was allowed to float upwards by 21 per cent between July 2005 and July 2008, was then repegged in response to the financial crisis. Beijing said on June 19 it would permit some movement but did not commit itself to a target.

Tim Geithner, Treasury secretary, said: “What matters is how far and how fast the renminbi appreciates.”

Mr Geithner, who has been criticised by some lawmakers for failing to push Beijing hard enough, said: “We will closely and regularly monitor the appreciation of the renminbi … in close consultation with Congress.”

Key lawmakers said that China would have to allow faster appreciation of the renminbi then previously. Sander Levin, chairman of the House ways and means committee, said: “This is a first step, but clearly only that.”

Members of Congress have threatened legislation to restrict Chinese imports on the grounds that the currency is undervalued and preventing US companies from competing.

“We must monitor China’s progress but also give serious consideration to all options in the event, as was the case in 2005-08, that China fails to take the additional necessary steps,” Mr Levin said.

Naming a government a manipulator, which involves a complex set of criteria, carries no sanctions except a commitment to start negotiations, which in the case of the US and China have been under way for years.

Meanwhile, the International Monetary Fund said on Thursday the US economy had rebounded faster than expected but faced the threat of contagion from sovereign debt problems in Europe.

In an advance summary of its annual health check of the US economy, the IMF said: “While still modest by historical standards, the recovery has proved stronger than we had earlier expected, owing much to the authorities’ strong and effective macro-economic response.”

The release of the report was accompanied by good news on the economy, which contrasts with a run of recent disappointing data. The number of Americans filing for jobless claims last week fell more than expected, offering some measure of comfort that the recovery in the labour market is advancing, albeit slowly.

But the IMF warned that, along with risks of renewed weakness in the US housing market, international events of recent months had introduced risks to the recovery.