China's currency peg hurts U.S. exports but is also bad for the Chinese economy, since it prevents the country's authorities from running their own monetary policy, Federal Reserve Chairman Ben Bernanke said.
They need to continue doing what they had been doing, which is to allow their currency to appreciate to something more appropriate in terms of its market value, Bernanke said.
The comments, part of an interview with CBS program 60 Minutes aired on Sunday, were an especially strong indictment of the Asian giant's exchange rate stance, and comes after China has criticized the Fed's own policies.
If they fix their currency to the dollar, then they have to have the same monetary policy, essentially, that the United States has, Bernanke told 60 Minutes in excerpts of a video interview made available on the network's website.
China is growing very quickly. They're risking inflation by importing U.S. monetary policy. And that's a problem for them.
The Fed's decision to buy bonds to keep rates low and support a fragile recovery has raised eyebrows overseas. Many officials in emerging markets accused the U.S. central bank of actively trying to push down the dollar, saying the move risked stoking bubbles in unexpected places.
Ma Delun, a deputy governor of the People's Bank of China, said he was concerned the Fed's spending spree may undermine efforts to balance out global growth.
The Fed's program may add risks to the global economic imbalance, put pressure on emerging markets to adjust their international balance of payments and could also stir the formation of asset bubbles, Ma said in Beijing last month.
But in the CBS interview, Bernanke shot back: Keeping the Chinese currency too low is bad for the American economy, because it hurts our trade. It's bad for other emerging market economies.
Bernanke and other top Fed officials have strongly dismissed the notion that they are trying to manipulate the dollar to boost U.S. exports.
Currency undervaluation by surplus countries is inhibiting needed international adjustment and creating spillover effects that would not exist if exchange rates better reflected market fundamentals he told a conference at the European Central Bank in Frankfurt in November.
It was a thinly veiled critique of China, though he did not cite the country specifically by name.
Since China loosened its peg to the U.S. dollar in June, the yuan has appreciated about 3 percent. But at its current level of 6.65 per dollar, the currency remains far weaker than what many economists say it should be under a floating exchange rate system.
Critics say Beijing undervalues its currency by 15 percent to 40 percent to give its companies an unfair price advantage in international trade.