‘Currency manipulator’ label of US groundless
Following US President Donald Trump’s series actions which are leading to global trade and financial chaos, the US Treasury moved to name China a “currency manipulator” on Monday, which was denounced by China’s central bank and Chinese economists as groundless and self-destructing.
The unwarranted accusation, made after the yuan weakened against the greenback, sets the stage for the US to brandish its tariffs weapon, analysts said. They believe China would stay unaffected by US actions that would obstruct bilateral trade talks, and push ahead with financial opening.
Both the onshore and offshore yuan breached the 7 mark against the US dollar for the first time in more than a decade on Monday.
weakness continued Tuesday.
The yuan’s daily fixing rate weakened by 458 basis points to 6.9683 against the dollar Tuesday. In China’s spot foreign exchange market, the yuan is allowed to rise or fall by 2 percent from the central parity rate each trading day.
A few hours after Trump tweeted, “China dropped the price of their currency to an almost historic low. It’s called ‘currency manipulation,’” on Monday, Treasury Secretary Steven Mnuchin announced the currency manipulation designation in a statement on the Treasury’s website.
Mnuchin will engage with the IMF to “eliminate the unfair competitive advantage created by China’s latest actions,” according to the statement. The IMF has yet to comment.
There is no such issue as exchange rate manipulation, as the yuan exchange rate is by nature determined by market supply and demand, the People’s Bank of China (PBC), the country’s central bank, said in a statement on Tuesday.
“A capricious act of unilateralism and protectionism, it will severely undermine international rules and have material impacts on the global economy and finance,” said the PBC.
US stocks plummeted on Friday after the Trump administration announced new tariffs on China. The Trump administration wanted to deflect criticism against it by finding a scapegoat like China, labeling the latter as a “currency manipulator,” said Guan Tao, a former senior official at the State Administration of Foreign Exchange.
“The US move is random and groundless, which will not be approved by the IMF,” Guan told the Global Times Tuesday.
“China has never used and will not use the yuan exchange rate as a tool to deal with the trade frictions,” said the statement, reiterating the stance of PBC governor Yi Gang the previous day.
“Labeling another country a currency manipulator is unjustified. The US doesn’t have the right to make such a wanton claim,” Dong Shaopeng, an adviser of the China Securities Regulatory Commission, told the Global Times.
The US has been using this to disrupt China’s economy and financial system since 2004. “It’s a groundless frame-up and pure bullying act,” Dong said.
“Such a label is not consistent with the quantitative criteria set by the US Treasury itself for the so-called ‘currency manipulator,’” PBC said Tuesday.
The US Treasury’s criteria to judge whether its trading partners are engaging in currency manipulation include a material current account surplus, which has been lowered to 2 percent of GDP from the previous 3 percent.
China’s current account surplus stood at 1.55 percent of its GDP in the first quarter, lower than the ratcheted-down number, according to Wu Jinduo, head of fixed income at the research institute of Great Wall Securities, citing data from China’s foreign exchange regulator.
The criteria, essentially subjective and vague, have turned out to be another US weapon together with its trade tariffs threats, but the accusation appears to be failing, said Wu.
In a note sent to the Global Times on Tuesday, strategists at DBS Group Research said, “Naming China a currency manipulator could open the door for US tariffs to eventually increase to more than 25 percent on Chinese goods.”
The Treasury announcement on Tuesday will give rise to market volatility, the PBC said Tuesday, adding it will cut into the recovery of the global economy and ultimately hurt US interests.
Global financial markets have taken a hit from the US’ unruly moves.
Stock markets across the Pacific recorded big losses. The Dow lost nearly 800 points to close below 26,000 points on Monday, suffering its worst trading day of the year.
China, for its part, was advised not to overreact, Wu said, noting the nation should continue on its reform path.
In a fresh sign of China’s unswerving push for financial opening-up, global financial messaging system SWIFT launched a wholly foreignowned entity in Beijing on Tuesday.
As China’s capital market is about to be fully opened, the launch of the wholly owned entity is an inevitable outcome which represents a significant milestone in SWIFT’S global development, Daphne Huang, SWIFT’S head of China, told reporters.
The new entity will denominate and pay products and services in yuan, marking the system’s acceptance of the yuan as the third global currency following the US dollar and euro, according to Huang, in a move that would help the yuan move a step further in internationalization.