China not labeled manipulator

AFP | Minutes from the Federal Reserve's latest policy meeting show the central bank will continue to hike interest rates

The economy's trade surplus with the United States exceeds USD20 billion; its current account surplus makes up at least three percent of its gross domestic product; and it persistently unilaterally intervenes in the foreign exchange market. Washington has long argued that China keeps its currency artificially low to make its exports competitive.

The measures being adopted by the government suggest the PBOC may be moving towards a yuan foreign-exchange regime that is flexible enough to make China's capital account more accessible.

Overseas funds have already started to play a bigger role in the Chinese bond market, increasing the possibility that funds will start to flow out of the country, causing greater currency depreciation.

The yuan weakened following the USA announcement.

No major trade partner was designated a currency manipulator, according to the report, which was released Wednesday by the Treasury.

What happens if China is declared a currency manipulator? In morning trading Thursday in Asia, it hit its lowest level against the dollar since January 2017.

The Yuan has tumbled by more than 9% against the dollar in the past 6 months, making it one of Asia's worst performers for this year as the country is made to deal with internal issues of a slackened economic growth and rising debt levels, while fielding off trade war tariff attacks from the US.

The Treasury Department further noted that it places significant importance on China adhering to its commitments to refrain from engaging in competitive devaluation and to not target China's exchange rate for competitive purposes.

"We must accept the consequences and subsequent changes, including the impact on the exchange rate", Yi said.

Liu Shijin, a member of the PBOC's monetary policy committee, argued the yuan's natural equilibrium level was a dynamic concept, changing with the economic environment and that the focus on whether the currency would break below or hold above 7 to the United States dollar missed the point.

The US Treasury Department stopped short of declaring China a currency manipulator in its semi-annual report on foreign exchange rates, averting an escalation of a trade war while serving notice that the US will closely watch the yuan after its recent slide.

In August, with the US-China trade dispute escalating, there was concern in the US that China, the largest non-US holder of Treasuries, would retaliate by paring its holdings.

"Of particular concern are China's lack of currency transparency and the recent weakness in its currency", Treasury Secretary Steven Mnuchin said in a statement.

Benchmark 10-year notes last fell 6/32 in price to yield 3.2013 percent, from 3.179 percent late on Wednesday.

But some say the central bank, confident it can control any side effects, might allow the market to carry the yuan gradually lower.

"The US dollar should remain supported in the coming weeks, which would continue to exert [downward] pressure on the yuan and it seems China is not too concerned about this", Cheung said.

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