U.S. Urges China to Allow Bigger Market Role in Valuing Yuan

The U.S. urged China to reduce currency interventions and let markets play a bigger role in setting the value of the yuan, in a report that declined to name any major trading partner a foreign-exchange manipulator.

“There are a number of continuing signs that the exchange-rate adjustment process remains incomplete and the currency has further to appreciate,” the Treasury Department said yesterday in a semiannual report to Congress.

Pressured by its international counterparts to loosen currency controls, China last month doubled the limit within which the yuan, also known as the renminbi or RMB, can move against the U.S. dollar every day.

“The widening of the band gives China an opportunity to reduce intervention and allow the market to play a greater role in determining the exchange rate” the Treasury said in the report. “To realize this opportunity, China should refrain from intervention within the band.”

The criticism comes less than a week after finance ministers and central bank governors of the Group of 20 economies met April 11 in Washington. They jointly pledged to pursue policies that “lift and rebalance global demand and achieve exchange-rate flexibility as well as increase growth potential,” according to a joint statement.

Reform Continues

China will continue to reform its exchange-rate formation mechanism and hopes the U.S. will take a cooperative and constructive attitude, Hua Chunying, spokeswoman for the Ministry of Foreign Affairs, said at a regular briefing in Beijing.

“This big trend won’t change -- we will continue to improve the managed floating exchange-rate system,” Hua said. ‘‘We hope the U.S. can correctly understand and properly deal with economic and trade issues, including the yuan exchange-rate issue.’’

In the month before the band was widened, the People’s Bank of China ‘‘took measures, including reported heavy intervention, to significantly weaken the RMB,’’ the Treasury said in yesterday’s report.

Export Competition

The U.S., seeking to boost sales overseas to add impetus to the growing economy, targets countries with large and persistent trade surpluses, including China. Government efforts to hold down the value of the yuan against the dollar give Chinese exporters an edge over U.S. competitors.

‘‘They just make noise about China, but they never accuse them of anything,’’ said Jim Bianco, Chicago-based president and founder of Bianco Research LLC. ‘‘What is it that the U.S. wants? They want the dollar to fall against the yuan.’’

China’s interventions mean the authorities sell yuan in exchange for foreign currencies, boosting reserves. The report called China’s nearly $4 trillion in reserves ‘‘excessive by any measure.”

The Treasury also said it will continue to “closely monitor” policies in Japan, and to encourage countries in the euro area that are running current-account surpluses, such as Germany, to boost domestic demand.

Germany’s surplus poses a threat to the euro-area economy, the European Commission said on March 5 and urged the nation to boost demand and investment. The country’s current-account surplus has surpassed 6 percent of gross domestic product every year since 2006, except in 2009, data compiled by Bloomberg show.

“While identification of Germany is a welcome step, as are the EC’s recommendations for measures to bolster investment and demand growth, it remains to be seen whether the procedure can produce robust recommendations,” the Treasury said in the report.

South Korea should limit foreign-exchange intervention to the “exceptional circumstances of disorderly market conditions,” the department said in the report.

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