China refutes ‘manipulator’ label

China has told America not to use the weak renminbi as a scapegoat for its economic problems as America edges closer to branding China a “currency manipulator”.

The American Treasury was due to release its twice-yearly currency report after Fund Strategy went to press.

Such reports can be used to trigger policy action against nations America deems are manipulating their currencies. (article continues below)

It was also announced last week that America’s trade deficit hit $46.3 billion in August, up from $42.6 billion (£26.6 billion) in July, stoking the debate a global currency war is brewing ahead of next month’s G20 summit in South Korea.

Timothy Geithner, the American Treasury secretary, suggests China’s policy of buying dollars to keep the renminbi low is distorting the global currency system through forcing emerging market nations to intervene. Last week China’s foreign exchange reserves were announced as rising to a record $2.65 trillion at the end of September.

China pledges to reform its policy on the renminbi at its own pace. Despite the anti-Chinese messages from Washington, the rise of China’s reserves is stopping the renminbi from appreciating.

Several American commentators last week blamed China for the currency tensions, days before America indicated it may be ready for a second round of quantitative easing to boast its flagging economic recovery.

Ben Bernanke, the chairman of the Federal Reserve, said in a speech at the end of the week: “Given the [Federal Open Market] committee’s objectives, there would appear – all else being equal – to be a case for further action”.

Japan and South Korea were also criticised last week after Japan sold its own currency to keep its exports from becoming too expensive. Naoto Kan, the prime minister of Japan, said China and South Korea should take “responsible actions” in relation to their exchange rates, in a week which saw the dollar slip to a 15-year low versus the yen.

According to Chosun Ilbo, a Korean newspaper, Kato told a budget committee meeting: “It is against the mutual co-operation of the G20 for particular countries to artificially keep the value of their currencies from rising.”

Yoshihiko Noda, Japan’s finance minister, was also quoted as saying: “In Korea, intervention happens regularly. As chair of the G20, Korea’s role will be seriously questioned.”

Following its hitting of a 15-year high versus the dollar the Japanese authorities last month starting selling yen and buying the dollar to deliberately weaken its currency, a move which was not well received by the Americans, Chinese and Europeans.