US may change currency test as it spars with China

10%

Drop in yuan against the dollar in the past six months

washington — US Treasury Secretary Steven Mnuchin is open to changing how the US determines which nations are gaming their currencies, a move that could give US President Donald Trump the chance to officially brand China a foreign exchange-rate manipulator as he seeks leverage to redefine trade terms between the world’s largest economies.

One method Mnuchin’s considering: Use a 1988 trade act with a broad definition of currency manipulation to designate a country a manipulator, even if the label isn’t warranted by specific tests under a 2015 law, he said. The other would be to change the criteria that help establish whether a country is engaging in competitive devaluation of its currency, according to Mnuchin.

Treasury applies three tests to measure whether a country should be labelled a currency manipulator. The framework of the criteria is provided by Congress, but the specific thresholds in the tests are at Treasury’s discretion.

“We may at some point look at whether the tests should be changed,” Mnuchin said on Sunday. “We always look at these things.”

While Mnuchin refrained from labelling China a currency manipulator in a semi-annual report released last week, averting an escalation of the trade war, the report was critical of China, highlighting US concerns about the country’s bilateral trade surplus. The 34-page report also said the US was “deeply disappointed” that China doesn’t disclose its currency interventions. “It was stronger in the language, and that was intended,” Mnuchin said.

One issue last week’s report didn’t address is the strengthening dollar’s role in contributing to the US current-account deficit. A strong US economy is driving the Federal Reserve to raise interest rates, a tightening campaign that has pushed up the dollar and weighed down emerging-market currencies. The Bloomberg Dollar Spot Index has climbed 6.7 per cent since midApril amid rate increases and strong growth, spurred in part by expansive fiscal policy.

Mnuchin on Sunday acknowledged that “there are obviously economic issues” behind the renminbi’s weakness. The yuan has dropped about 10 per cent against the dollar in the past six months as China’s economic growth slows, a move Mnuchin raised in a meeting with People’s Bank of China Governor Yi Gang in Bali, Indonesia earlier this month.