The U.S. Treasury Department said Friday in a report that China was not manipulating its currency.
"In China, since the authorities decided in June 2010 to allow the exchange rate to appreciate in response to market forces, the renminbi (RMB) has appreciated by a total of 5.1 percent against the dollar in nominal terms through the end of April 2011, or at an annual pace of approximately 6.0 percent," said the semiannual report on international economic and exchange rate policies.
The Treasury said that as inflation in China is significantly higher than it is in the United States, the RMB has appreciated more rapidly against the dollar on a real, inflation-adjusted basis, at a rate of around 9 percent per year.
The appreciation of yuan, or RMB, has been one of the core disputes between Washington and Beijing in recent years.
Washington wanted the Chinese yuan to appreciate faster in hopes of increasing U.S. exports to China, thus reducing its overall trade deficit and increasing employment.
China, however, insisted that enormous trade surplus with the United States was largely caused by U.S. high-tech exports control towards China. Many economists believe that the appreciation of the RMB will do little to help U.S. employment.
China has long said it would like to increase the flexibility of the Chinese currency -- and so Beijing has been doing. Since 2005, the Chinese Yuan has risen nearly 30 percent against the U.S. dollar.
By far, the United States has avoided labeling China as a currency manipulator.
"No major trading partners of the United States" met the standards identified by the Congress as currency manipulator, the report concluded.
The Omnibus Trade and Competitiveness Act of 1988 requires the Treasury Secretary to provide reports on "whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade."
With respect to exchange rate policies, ten economies were reviewed in this report, accounting for nearly three quarters of U.S. trade. Many of the economies have fully flexible exchange rates. A few have more tightly managed exchange rates, with varying degrees of management.
During the recent S&ED, China stressed that it "will continue to promote RMB exchange rate flexibility."
The U.S. Treasury added that it will continue to "closely monitor" the RMB appreciation pace.
The report meanwhile provided a general assessment of the U.S. and world economy. "The U.S. economy is recovering from its deepest recession in the post-war period," it said. "While recent growth is encouraging, the economy still faces significant challenges."
The number one challenge is still in the labor market. The U.S. unemployment rate, currently at 9.0 percent, is not expected to fall significantly this year.
Besides, the housing market and the long-term fiscal situation are "unsustainable," according to the report.
As for the world economy, the report noted that "the global economy recovered strongly in 2010, growing 5.0 percent compared to a contraction in output of 0.5 percent in 2009, according to the IMF."
The recovery pace across different economies, however, was uneven, with the advanced economies expanding by an estimated 3.0 percent and emerging markets and developing economies growing by 7.3 percent.
Advanced economies still face high unemployment and fiscal challenges, while emerging markets and developing economies are facing escalating inflation and a risk of overheating, the report said.
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