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China Rebuffs US Pressure On Currency Revaluation

James A. Morrissey, Washington Correspondent

Chinese government officials have made it clear that they have no intention of making a major change in the exchange rate of their currency in the near future, and they will continue to resist "outside pressure" from the United States. There are indications, however, that a gradual increase in the yuan's exchange rate may be in the offing.

According to the China News Agency, President Hu Jintao told President Barack Obama last week that any action on currency valuation would be in the interest of China's social and economic needs, and that China will stick firmly to its own path of reforming the yuan's exchange rate under a "currency formation mechanism." In response, Obama said: "China rightly sees the issue of currency as a sovereign issue. They are resistant to international pressure when it comes to them making decisions about their currency policy and monetary policy."

In recent days the Obama administration has taken steps to try to resolve the issue by diplomatic means rather than unilateral action by the United States, despite increasing pressure from Congress to do something meaningful. Treasury Secretary Timothy Geithner attempted to calm the debate when he delayed publication of a report on international exchange rate policies, due April l5, that many expected would brand China as a "currency manipulator." Geithner said the action was taken in view of the fact that there are some "very important high level meetings" over the next three months that will be critical to "bringing about policies that will create a stronger, more sustainable and more balanced economy."

Geithner's action was criticized by a number of business organizations, including the U.S. Business and Industrial Council, whose president, Kevin Kearns, said: "The Obama administration insists that engagement and diplomacy can convince China to halt its currency protectionism and help restore genuine health to the global economy. President Hu's blunt rebuff once again exposes the naiveté of this strategy."

Federal Reserve Board Chairman Ben Bernanke entered the fray on April 15 when he told a congressional committee he believes that the yuan is undervalued "to promote a more export-oriented economy." He said: "It would be good for the Chinese to allow more flexibility in their exchange rate to address inflation, and bubbles within their own economy."

In response to a question from Sen. Charles Schumer, D-N.Y., who is sponsoring currency reform legislation, Bernanke said that moving the exchange rate alone would not have a major short-term effect on trade, though "over time it would have an impact."

April 20, 2010