U.S. Decision on China Yuan ‘Wacky,’ Straszheim Says
The U.S. Treasury’s decision to stop short of branding China a currency manipulator has made it harder for the label to be imposed in the future, International Strategy & Investment Group’s Donald Straszheim said.China took a “significant step” last month when it began to allow markets to drive the currency higher, the Treasury Department said in a report to Congress released yesterday. The report said the yuan “remains undervalued.”
“The Treasury secretary basically certified that China is innocent through the second quarter of this year,” Straszheim, senior managing director for China research at ISI, said in a Bloomberg Television interview. “This is Washington raising the bar on its own behavior. It’s completely wacky.”
Yesterday’s report, which concluded that no major U.S. trading partner manipulates its currency, comes after Chinese policy makers announced June 19 that they would allow greater fluctuation. China had been holding its currency at about 6.83 to the dollar from July 2008 to help exporters, after allowing the yuan to rise 21 percent the three prior years.
Straszheim predicted the yuan may appreciate “erratically” to reach 6.5 per dollar by the end of next year. The yuan traded at 6.7748 as of 9:52 a.m. in Shanghai.
A gradual strengthening of the yuan would be good for China as it would help curb large inflows of investment money drawn by expectations for currency appreciation, Yu Yongding, a former adviser to the People’s Bank of China, wrote in a commentary published in today’s China Securities Journal.
Trade Tensions
House Ways and Means Committee Chairman Sander Levin and Senator Charles Grassley, the Senate Finance Committee’s top Republican, both called for the U.S. to file a trade complaint over the currency issue.
Such a move will lead to trade protectionism, harm global growth and is “not the right solution at all,” said ISI’s Straszheim, a former president of the Milken Institute and global chief economist at Merrill Lynch.
“If Washington does that, China would slap Washington back immediately,” he said. “They wouldn’t sit idly by, who knows where that leads. Neither country wants to go down that road.”
Source: Bloomberg
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