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Lew Urges China to Show Commitment to Pursue Market-Set Currency

Chinese Yuan Banknotes
China allowed the yuan to depreciate before widening the exchange-rate band on March 17. Photographer: Brent Lewin/Bloomberg

U.S. Treasury Secretary Jacob J. Lew urged Chinese officials to demonstrate that they remain committed to pursuing a market-determined exchange rate.

“They need to get back on the path of demonstrating that they’re committed to moving towards a market-determined exchange rate,” Lew said in an interview on CNBC yesterday. “If they want it to be a reserve currency some day, they need to demonstrate that,” he said, referring to the yuan.

China allowed the yuan to depreciate before widening the exchange-rate band on March 17. The changes occurred as China continued to build current-account surpluses, accumulate excessive foreign reserves and attract significant net foreign-direct investment. In 2013, the currency strengthened 2.9 percent against the dollar and on Jan. 14 reached a 20-year high of 6.0406 per dollar.

Lew spoke ahead of a gathering of world finance ministers and central bank heads in Washington later this week. He urged Europe to do its part in supporting global growth, saying current account surplus countries including Germany need to boost domestic demand.

Deflation Risk

“If you look at Europe as a whole, the growth rate stayed very modest, the risk of deflation is something that has a lot of people concerned,” Lew said. “The answers lie in the policy decisions” such as investment in infrastructure, he said.

Lew added that the U.S. is doing its part by boosting the economy.

The International Monetary Fund, which released its global forecasts April 8, said the U.S. is providing a “major impulse” to global expansion by accelerating to a 2.8 percent growth rate this year and 3 percent in 2015. The 18-country euro area will expand 1.2 percent this year, up from 1 percent forecast in January, according to the IMF’s outlook.

It was Lew’s first television appearance since returning to the Treasury Department last week after undergoing outpatient surgery for an enlarged prostate March 25.

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