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The Chinese Exchange Rate

The Issue

China’s external imbalance and exchange rate policies have gotten worse over the past five years. It has aggressively blocked appreciation of the renminbi through its massive intervention in the currency markets, and the US Treasury has severely jeopardized its credibility on the issue by failing to label China a “currency manipulator.” Treasury’s policy needs to change sharply and quickly. It should notify China that if it fails to make a significant “down payment” appreciation of at least 10 percent before the release of Treasury’s next report on exchange rates, it will be labeled a “manipulator.” In addition, the administration should notify its G-7 partners and the International Monetary Fund that it plans to label China a manipulator absent action. These other countries would prefer to avoid a US-China confrontation on the issue and could thus be brought into a multilateral effort. The administration should also take a multilateral initiative on the trade side by filing a case in the World Trade Organization (WTO) against China’s currency practices as an export subsidy or as a frustration of trade liberalization under WTO Article XV(4), or both. If these multilateral efforts fail, the United States will have to address the issue unilaterally. Treasury can then intervene directly in the currency markets. Finally, if all of the above fails, the administration should notify the Chinese that it will be unable to oppose responsible congressional legislation that would effectively sanction the Chinese (and some other Asians) for their failure to observe their international currency obligations.

Essential Reading from the Institute

Op-ed: China's Currency Needs to Rise Further
by Morris Goldstein, Peterson Institute
and Nicholas R. Lardy, Peterson Institute
Op-ed in the Financial Times
July 22, 2008

Book: Debating China's Exchange Rate Policy
edited by Morris Goldstein and Nicholas R. Lardy
April 2008

Working Paper 07-5: A (Lack of) Progress Report on China's Exchange Rate Policies [pdf]
by Morris Goldstein, Peterson Institute
June 2007

Testimony: The Dollar and the Renminbi
by C. Fred Bergsten, Peterson Institute
Statement before the Hearing on US Economic Relations with China: Strategies and Options on Exchange Rates and Market Access, Subcommittee on Security and International Trade and Finance, Committee on Banking, Housing and Urban Affairs, United States Senate
May 23, 2007

Op-ed: The Yen Beckons China’s Dollars
by C. Fred Bergsten, Peterson Institute
Op-ed in the Financial Times
March 12, 2007

Policy Brief 07-4: Global Imbalances: Time for Action [pdf]

Testimony: The Chinese Exchange Rate and the US Economy
by C. Fred Bergsten, Peterson Institute
Testimony before the Hearing on the Treasury Department's Report to Congress on International Economic and Exchange Rate Policy and the Strategic Economic Dialogue Committee on Banking, Housing and Urban Affairs
January 31, 2007

Testimony: Assessing Progress on China’s Exchange Rate Policies
by Morris Goldstein, Peterson Institute
Testimony before the Hearing on
"Risks and Reform: The Role of Currency in the US–China Relationship"
Committee on Finance, US Senate
Washington, DC
March 28, 2007

Article: Clash of the Titans
by C. Fred Bergsten, Peterson Institute
Article in Newsweek, International Edition
April 24, 2006

Op-ed: China's Revaluation Shows Size Really Matters
by Morris Goldstein, Peterson Institute
and Nicholas R. Lardy, Peterson Institute
Op-ed in the Financial Times
July 22, 2005

Policy Brief 06-6: China: Toward a Consumption-Driven Growth Path [pdf]
by Nicholas R. Lardy, Peterson Institute
October 2006

Working Paper 04-1: Adjusting China's Exchange Rate Policies [pdf]
by Morris Goldstein, Peterson Institute
June 2004

Policy Brief 05-1: A Currency Basket for East Asia, Not Just China [pdf]
by John Williamson, Peterson Institute
August 2005

Policy Brief 04-7: What Kind of Landing for the Chinese Economy? [pdf]
by Morris Goldstein, Peterson Institute
and Nicholas R. Lardy, Peterson Institute
November 2004