The U.S. has said that China cannot be called a currency manipulator despite the fact that the yuan remains undervalued.
In its semi-annual report to the Congress on the International Economic and Exchange Rate Policies which was released Tuesday, the U.S. Treasury Department said that China could not be labeled a currency manipulator since the country had not violated the legal standards. The report said that China had taken several proactive measures to appreciate its currency.
The yuan, also known as the renminbi (RMB), “has appreciated by 9.3 percent in nominal terms and 12.6 percent in real terms against the dollar since June 2010. China’s trade and current account surpluses both have fallen to 2.6 percent of GDP from peaks of 8.8 and 10.1 percent of GDP, respectively,” the report said.
It said that the authorities’ interventions in the exchange markets had significantly reduced since the third quarter of 2011 and the country had taken a series of steps to liberalize the controls on capital movements, moving towards a more flexible exchange rate regime.
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"In light of these developments, Treasury has concluded that the standards ... have not been met with respect to China," the report said.
However, the report said that there was ample evidence that the yuan was undervalued.
"Nonetheless, the available evidence suggests the renminbi remains significantly undervalued, and further appreciation of the RMB against the dollar and other major currencies is warranted." the report said.
The label “currency manipulator” was largely symbolic but it would necessitate the Obama administration to hold discussions with China on readjusting the yaun’s value, Reuters reported. China had been labeled a manipulator between 1992 and 1994 and since then no other country has been labeled so.
Chinese Foreign Ministry spokesperson Hong Lei denied the allegations that the yuan was undervalued.
"In recent years, the ratio between China's GDP and the current account surplus has decreased on a daily basis. The renminbi's exchange rate is in equilibrium. There is no so-called problem that the exchange rate is undervalued," he told reporters in Beijing, Reuters reported.
"We hope that the U.S. side can appropriately deal with trade and economic issues, including the renminbi exchange rate," Hong added.
There has been immense pressure on the Obama administration to declare China a currency manipulator. The U.S. business houses say that China keeps its currency artificially undervalued to benefit from the foreign trade and the practice is negatively impacting the U.S. economy.
The issue was a hot topic in the U.S. presidential elections with Republican candidate Mitt Romney pledging that he would declare China a currency manipulator on his first day in the White House if he won the elections.