Treasury Sees Some Movement on China Exchange Rate

Stephanie Henry

October 16, 2014 - The US Treasury Department on Wednesday said China’s currency remains “significantly undervalued,” but did not label it a currency manipulator in its Semi-Annual Report to Congress on International Economic and Exchange Rate Policies. Instead, Treasury observed “some renewed willingness” by Chinese regulators to allow RMB appreciation and reduce intervention, following China’s commitment to do so at the July 2014 Strategic & Economic Dialogue. Treasury has not labelled China a currency manipulator since 1994.

In its report, Treasury said China should continue its momentum to reduce foreign exchange (FX) intervention, and strengthen transparency of its exchange rate policy. Treasury also noted that China has made limited progress at rebalancing its economy, and that moving towards a more market-driven exchange rate would help China reach its rebalancing goals.

Examining RMB values in 2014, Treasury noted the RMB has “partially recovered” from a 3.1 percent depreciation against the dollar that occurred earlier this year, rising by around 2 percent. While China does not publish information on FX intervention, Treasury believes China’s banking authorities continued “modest FX intervention” in 2014.  

Compared with Treasury’s report, other international groups have seen slightly better progress on China’s exchange rate. For example, in July 2014, the International Monetary Fund determined China’s RMB was “moderately undervalued.”

According to the US-China Business Council's (USCBC) estimates, the RMB has appreciated more than 30 percent since 2005. USCBC’s long-standing position is that China should move faster to a more market-oriented exchange rate, and opposes legislative proposals in Congress that would impose tariffs based upon highly subjective estimates of the "true" exchange rate.