The Philippine Star

US-China cur­rency deal won’t change dol­lar-yuan dy­nam­ics

- Foreign Exchange Market · Currencies · Finance · World Finances · Financial Markets · Business · United States of America · China · Washington · Donald Trump · U.S. Treasury · Beijing · U.S. Chamber of Commerce · International Monetary Fund · London · Office of the United States Trade Representative · Robert Lighthizer · Steven Mnuchin

WASH­ING­TON (Reuters) — A USChina cur­rency agree­ment be­ing floated as a sym­bol of progress in this week’s trade talks be­tween the world’s two largest economies would largely re­peat past pledges by China, cur­rency ex­perts say, and will not change the dol­lar-yuan re­la­tion­ship that has been a thorn in the side of Pres­i­dent Don­ald Trump.

Such a deal would, how­ever, pro­vide the US Trea­sury an op­por­tu­nity to climb down from what cur­rency ex­perts say was a mis­guided dec­la­ra­tion in Au­gust that Bei­jing was a “cur­rency ma­nip­u­la­tor,” re­duc­ing the yuan’s value to gain “un­fair com­pet­i­tive ad­van­tage in in­ter­na­tional trade.”

Lit­tle is known about the struc­ture of a cur­rency deal that the US Cham­ber of Com­merce said Amer­i­can and Chi­nese ne­go­tia­tors were work­ing to­ward on Thurs­day in their first high-level trade talks since July, but it is widely ex­pected to in­clude a prom­ise from both to sides to re­frain from de­valu­ing their cur­ren­cies to gain a com­pet­i­tive trade ad­van­tage.

As mem­bers of the Group of 20 ma­jor economies, both the US and China agreed to such lan­guage start­ing in 2010.

At that time, China was widely seen to be de­lib­er­ately hold­ing down the value of its heav­ily man­aged cur­rency, also known as the ren­minbi (RMB). But this in­ter­ven­tion shifted to mainly prop up the yuan’s value af­ter a sharp de­val­u­a­tion in 2015.

It is un­clear how a pact with the US might change Bei­jing’s be­hav­ior.

“In essence, I don’t see any­thing in a cur­rency deal that will cause a sig­nif­i­cant change in the present RMB/dol­lar cur­rency mar­ket dy­nam­ics,” said Mark So­bel, a long­time former Trea­sury and In­ter­na­tional Mone­tary Fund of­fi­cial who is now US chair­man of the Of­fi­cial Mone­tary and Fi­nan­cial In­sti­tu­tions Fo­rum, a Lon­don-based think tank.

My­ron Bril­liant, head of in­ter­na­tional af­fairs at the US Cham­ber of Com­merce, said a cur­rency deal would likely be ac­com­pa­nied by the US’ can­cel­ing a planned tar­iff in­crease to 30 per­cent from 25 per­cent on $250 bil­lion in Chi­nese im­ports.

A US of­fi­cial con­firmed that cur­rency would likely be dis­cussed in the talks, but it was pre­ma­ture to say whether an an­nounce­ment would be made on the is­sue this week. Op­ti­mism over the talks had im­proved af­ter the first day’s ne­go­ti­a­tions wrapped up.

US Trea­sury Sec­re­tary Steven Mnuchin, a prin­ci­pal ne­go­tia­tor in the talks along with US Trade Rep­re­sen­ta­tive Robert Lighthizer, said as early as Fe­bru­ary that Chi­nese Vice Pre­mier Liu He had largely agreed to cur­rency lan­guage. But talks on a broader deal to end the trade war be­tween the US and China broke down in May, leav­ing the cur­rency pro­vi­sions in limbo.

Mnuchin has long pushed his Chi­nese coun­ter­parts for in­creased trans­parency in yuan mar­ket in­ter­ven­tions by China’s cen­tral bank and to main­tain a sta­ble yuan value against the dol­lar.

In Au­gust, af­ter the yuan fell be­low the psy­cho­log­i­cally im­por­tant level of 7 to the dol­lar in re­sponse to a new round of US tar­iffs, the Trea­sury Depart­ment de­clared China a cur­rency ma­nip­u­la­tor for the first time in 25 years fol­low­ing Trump’s own tweets that China was ma­nip­u­lat­ing the yuan.

The des­ig­na­tion un­der a 1988 law re­quires the Trea­sury to en­ter into ne­go­ti­a­tions with the of­fend­ing coun­try to cor­rect the sit­u­a­tion — an ef­fort that had been un­der way for more than two years.

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