The Obama administration issued a report Tuesday criticizing China for recent drops in the value of its currency and vowing to closely monitor the yuan’s progress and press for further policy changes.
The Treasury Department called China’s currency “significantly undervalued” but didn’t go as far as to deem China or any other nation a currency manipulator in its semiannual report to Congress.
{mosads}”The Chinese authorities have been unwilling to allow an appreciation large enough to bring the currency to market equilibrium, opting instead for a gradual adjustment which has now been partially reversed,” the Treasury Department said in the report.
Recent developments in the exchange rate “raise particularly serious concerns, if they presage a retreat from China’s announced policy of allowing the exchange rate to reflect market forces, reducing exchange market intervention and moving toward a market-determined exchange rate.” Treasury said in the report.
“We will continue to monitor this issue closely going forward.”
The report pointed to a more than one-month stretch this year where the yuan weakened 2.6 percent against the dollar in a decline Treasury called “unprecedented.”
Many congressional lawmakers and business groups have argued that China’s currency policies have led to a large global trade imbalance that has cost U.S. jobs.
While China’s yuan — also known as the renminbi or RMB — rose in value last year it was not “as fast or by as much as is needed, large-scale intervention has resumed, and so far this year the currency has reversed the appreciating trend,” the report said.
During the first three months of the year, the report said that China has continued “large-scale purchases of foreign exchange, despite having accumulated $3.8 trillion in reserves, which are excessive by any measure,” and that “suggests continued actions to impede market determination.”
The report also called on China to disclose its intervention in currency markets more regularly “to increase the credibility of its monetary policy framework and to promote exchange rate and financial market transparency.”
The report said that recent widening of the trading band gives China the opportunity to reduce intervention and allow the market to play a greater role in determining the exchange rate.
“Rebalancing the Chinese economy to rely more on household consumption, and less on exports and investment for growth is a longstanding goal of the Chinese leadership,” the report said.
“However, China has made only limited progress to date.”
This report covers developments in the second half of 2013 through end-March 2014.
Additionally, the Treasury Department said will continue to closely monitor Japan’s policies with the focus on supporting the growth of domestic demand.
For Korea, the report said that Korean authorities should limit foreign exchange intervention “to the exceptional circumstances of disorderly market conditions and increase the transparency of their interventions in foreign exchange.”
The Treasury report also relaxed its previous criticism of Germany’s economic policies and said this time around that it will “encourage those countries within the euro area with large and persistent surpluses to take action to boost domestic demand growth and shrink their surpluses in order to facilitate growth and rebalancing.”