U.S. will suffer consequences of labeling China “currency manipulator”

By Jin Sheping

On August 5, both onshore and offshore exchange rate of the Chinese yuan broke 7 against U.S. dollar.


It was in fact a natural market response to the changes in the international financial market and other external factors such as the U.S. claim last week to impose an additional 10 percent tariff on $300 billion worth of Chinese imports.


However, some American politicians are taking advantage of this and making hypes. On August 6, the U.S. Department of the Treasury designated China as “a currency manipulator”.


Such act of the U.S., which harms others without benefiting itself, would not only wreak havoc on the international financial order and cause turmoil in global financial market, but also severely hinder international trade and the recovery of global economy. Eventually, the U.S. itself will become a victim of the consequences.


It is easy to find a stick to beat a dog just as the U.S. can always find faults with China when it wants to smear the latter.


On one hand, the U.S. is wielding the big stick of tariffs against global countries, causing them to suffer drastic fluctuations in exchange rates; on the other hand, it is willfully labeling countries “currency manipulators”, forcing them to accept the so-called “reasonable exchange rates” designated by the U.S.


These evil actions of the U.S. revealed the country’s pursuit of unilateralism and protectionism, reflecting the arrogance and arbitrariness of Washington.


Anyone sensible can understand why the Chinese currency has broken the level of 7 yuan per U.S. dollar.


On August 1, the U.S. unilaterally announced that it would impose an additional 10 percent tariff on $300 billion worth of Chinese goods, which seriously breached the consensus reached by the heads of state of China and the U.S. in Osaka, Japan.


The move frustrated the global market’s expectations toward the relieving of China-U.S. economic and trade frictions, and became a blasting fuse of the fluctuation in yuan exchange rate.


Economic and trade frictions affect international trade which in turn has an impact on exchange rate. Such fluctuation is driven and determined by market forces and will never be “manipulated”.


Some developed countries, including the U.S., have constantly demanded China to make yuan exchange rate more flexible since long ago. However, when the yuan exchange rate becomes increasingly market-based and its frequency of fluctuation increases accordingly, some Americans immediately flip-flopped and accused China of “manipulating” exchange rate. It only reflected their absurdity.



Not able to find any actual evidence for their false allegation against China, the U.S. Department of the Treasury turned to the answers offered by the People’s Bank of China (PBOC) during a regular news briefing on August 5.


The statement by the PBOC “is an open acknowledgement by the PBOC that it has extensive experience manipulating its currency and remains prepared to do so on an ongoing basis”, said the U.S. Department of the Treasury.


The exchange rate of currency is determined by the market, but it cannot be left completely unattended. No country in the world today is adopting a laissez-faire attitude towards its sovereign currency.


As a competent authority of China’s foreign exchange policies, the PBOC has always been committed to maintaining the basic stability of yuan exchange rate and keeping it stable at a reasonable and balanced level.


In the face of fluctuation in yuan exchange rate and the potential positive feedback in the foreign exchange market, the PBOC would certainly take necessary and targeted measures to resolutely crack down on the short-term speculation so as to guarantee the stable running of the foreign exchange market. These measures have nothing to do with the so-called “manipulating exchange rate.”


Not just has China never manipulated exchange rate, in fact, the country has always regarded marketization as a goal of its foreign exchange reforms.


What China adheres to is a market-oriented and managed floating exchange rate system which is formulated in reference to a basket of currencies. Therefore, market supply and demand plays a decisive role in the formation of the yuan exchange rate.


As a responsible major country, China has reiterated on many occasions that it will never pursue competitive devaluation or use yuan exchange rate as a tool to deal with external disturbances including trade frictions.


Despite the recent depreciation of the yuan against U.S. dollar, the value of yuan has been generally rising from a historical perspective.


From the beginning of 2005 to June 2019, the nominal effective exchange rate of yuan appreciated by 38 percent and the real effective exchange rate of the currency by 47 percent, which made yuan the strongest currency among those of the Group of 20 (G20) economies.


Besides, it is also the currency that witnessed one of the greatest appreciations around the world, as revealed by the data from the Bank for International Settlements.


As China enjoys a basic equilibrium in the balance of international payments and has sufficient foreign exchange reserves, plus the country is seeing a continuous momentum of sustainable and sound economic development, it is totally able to maintain the stability of yuan exchange rate.


In addition, it is hardly possible to label China a “currency manipulator” even it is under the U.S. criteria, which is interesting.


According to the present definition of a currency manipulator given by the U.S. Department of the Treasury, a country needs to meet multiple quantitative criteria at the same time before it is labeled a currency manipulator.


The country’s current account surplus has to be equivalent to 2 percent of its GDP, and its foreign exchange bought through exchange rate intervention shall exceed 2 percent of its GDP.


However, China’s current account surplus in 2018 was only 0.37 percent of its GDP. Besides, the country has neither made massive purchases of foreign exchange nor obtained competitive advantages in trade via exchange depreciation.


Disregarding the facts and calling white black, the U.S. just wants to see China cave in to its extreme pressure and intimidation and make concessions in bilateral economic and trade consultations with the U.S., so that it can gain more.


China, though always advocates for resolving problems through dialogue and consultation based on equality and mutual respect, is never afraid of any forms of extreme pressure.


With steady economic development and prudent financial development, China is strong enough to handle any impact and attack.


The attempts of some Americans to put a spoke in China’s wheel of development by fabricating false accusations against the country such as labeling it “a currency manipulator” could not, cannot, and will not succeed.


Such attempts would not help solve any problems. The U.S. side had better respect the market rules and facts, and return to the right track of rationality and objectivity, rather than make troubles that would fan up the flames of the economic and trade frictions with China.