US-China currency deal a face-saver

WASHINGTON: A US-China currency agreement being floated as a symbol of progress in trade talks would largely repeat past pledges by China, currency experts say, and will not change the dollar-yuan relationship.

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 negotiators were said to be working towards, but it is expected to include a promise from both to sides to refrain from devaluing their currencies to gain a trade edge.

As members of the G20, the US and China agreed to such language in 2010. At the time, China was seen to be deliberately holding down the value of its 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 Washington might change Beijing’s behaviour.

“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 former longtime IMF official who is now US chairman of the Official Monetary and Financial Institutions Forum, a London-based think tank.

US Treasury Secretary Steven 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 Mr 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 two years.

The IMF disagreed, arguing that the yuan’s value was in line with China’s trade-battered fundamentals. Beijing had actually been spending reserves to prop up the yuan’s value, not push it down to make exports cheaper.