Snow Predicts China Will Revalue Currency By October.

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Author: Vaughan, Martin

Trade

Treasury Secretary Snow told the Senate Banking Committee today he believes warnings to China about its currency peg will prompt the Chinese to take steps to re-value its yuan before the Treasury Department issues its next report on international currency trends in October. "I'm thinking we've got their attention and they'll move," he said in response to questions from Senate Banking Chairman Shelby. But Snow stopped short of an unequivocal statement that without a re-valuation of the yuan, Treasury officials will conclude in the upcoming report that China is manipulating its currency for a trade advantage, a designation that lawmakers have sought. "If trends continue and no relief is put in place in terms of a flexible exchange rate, that is one thing we would look at in our next evaluation," he said.

Treasury's semi-annual currency report, which was due in March but came out only last week, included a statement that the Chinese peg was "highly distortionary" and China would meet technical requirements for designation as manipulating its currency if trends continue. That finding would trigger formal negotiations between the United States and China on re-valuing the yuan. Snow said he was leaving decisions on specific steps up to the Chinese, but acknowledged they could include allowing the yuan to float within a band of numbers. Pressed by Sen. Elizabeth Dole, R-N.C., on what steps by China would be sufficient to avoid designation, Snow said actions taken by the Chinese government between now and October must be "significant enough to improve materially the adjustment process that should be occurring." While he did not elaborate on what he meant by a material improvement, Snow told the panel, "This has to be something that will significantly close the gap between the current value and a more appropriate value." China critics allege the yuan is undervalued by as much as 40 percent. Senate Banking ranking member Paul Sarbanes, D-Md., said a band that would result in a rise in the yuan of only 3 percent to 5 percent against the dollar should not be considered sufficient. "It seems to me that talking in those terms completely misses the mark," said Sarbanes.

Sen. Debbie Stabenow, D-Mich., asked why Treasury officials had not issued an equally strident warning to Japan in its report, in light of recent statements by Japanese officials suggesting possible future interventions in the value of the yen. Snow noted that the Japanese government has not intervened in exchange rates since March 2004, even though a recent appreciation in the yen against the dollar raised some questions. "While we seem to be on a good course, we're going to continue to carefully monitor that and continue to reinforce our views," he said.

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By Martin Vaughan