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

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.