http://www.businessinsider.com/china-is-unloading-us-dollars-rapidly-2009-12#short-term-treasury-obligations-nose-dived-in-late-2008-1
Geithner signals U.S. patience waning on China currencyPaul Eckert and David LawderWASHINGTONThu Jun 10, 2010 9:40pm EDTRelated NewsChinese exports leap, put yuan back under microscope7:16pm EDTGeithner says world economy needs China yuan reform2:58pm EDTRPT-UPDATE 3-Geithner faces US lawmakers with tougher yuan talk2:42pm EDTGeithner testimony on U.S.-China relations11:00am EDTREFILE-US' Geithner:world economy needs China yuan reform10:02am EDT(Reuters) - Treasury Secretary Timothy Geithner indicated U.S. patience on China's currency policy was wearing thin on Thursday as a key lawmaker warned that he would move soon on legislation that would penalize Chinese goods.CHINAStriking his toughest tone on the yuan since delaying a decision in early April on whether to name China a currency manipulator, Geithner told a U.S. Senate hearing Chinese policies had a harmful worldwide impact."The distortions caused by China's exchange rate spread far beyond China's borders and are an impediment to the global rebalancing we need," Geithner said.Echoing a refrain he has used since April, he said Beijing would find it in its own interest to have a more flexible yuan, also known as the renminbi."A stronger renminbi would benefit China because it would boost the purchasing power of households and encourage firms to shift production for domestic demand, rather than for export," he told the Senate Finance Committee.U.S. lawmakers, many of whom face re-election in November, believe an undervalued yuan subsidizes Chinese exports at the expense of American competitors. With the U.S. unemployment rate hovering just below 10 percent, many demand action."The time is long past for any Treasury Department to admit publicly what everyone else already knows, that China is manipulating the value of its currency in order to gain an unfair advantage in international trade," said Charles Grassley, the senior Republican Senator on the committee.Democratic Senator Charles Schumer told Geithner to "be prepared" because lawmakers would move forward soon with legislation that would slap anti-dumping penalties and countervailing duties on goods from China and other countries with a "fundamentally misaligned" currency.BACK TO 2005After partly freeing its currency to rise gradually from mid-2005 to mid-2008, China repegged the yuan to the dollar at a rate that U.S. lawmakers and some economists say is as much as 40 percent below the actual value."The level of undervaluation is back to where it was in 2005. We have not made progress," said Schumer.Under sharp criticism, Geithner acknowledged that he did not know when China would allow the yuan to rise again."I, to be honest, do not know whether we're at the point now when we're going to see meaningful progress in the near term," he said.Two opportunities for the Chinese to move on the currency -- the U.S.-China Strategic and Economic Dialogue in May and the Group of 20 Finance Ministers meeting in South Korea last week -- passed without any action.The deepening of Europe's debt crisis since April has severely weakened the euro, causing markets to dampen expectations of a yuan shift any time soon.But new Chinese data released on Thursday showed a robust 48.5 percent jump in exports in May, putting pressure on U.S. President Barack Obama to placate critics. Chinese imports almost rose by nearly as big a margin.Dollar/yuan offshore forwards reversed earlier rises to fall late on Thursday, implying more yuan appreciation in future. But dealers said there was not a solid uptrend for the yuan for now.NO MORE GOOD COP?Geithner, who in April delayed a much-anticipated Treasury report on whether Beijing manipulates the value of its yuan, said he would "take stock" of the currency report after the G20 leaders summit in Canada later this month.Schumer's pressure and broad anti-China sentiment in Congress might help persuade Beijing to move, he said."I'm saying that it's important for China to understand that Congress will act if China does not act," added Geithner.Geithner "played less of a good cop than before" in the face of mounting congressional impatience, said economist Derek Scissors of the Heritage Foundation, a Washington think tank."The Chinese need to understand that the closer we get to September, the more likely we are to actually get this legislation passed by Congress," he said, referring to lawmaker's calculations ahead of November elections.Currency and trade are just one flashpoint in the difficult U.S.-China relationship. Ties were strained this year over human rights, Tibet and U.S. weapons sales to Taiwan.But Washington won Chinese support for new U.N. sanctions on Iran and has turned to China to help rein in North Korea after a series of provocative actions by Pyongyang.Senate Finance Committee Chairman Max Baucus said the United States appeared to be withholding criticism of Chinese economic policies in order to enlist Beijing's geopolitical support and should consider "de-linking" the two areas."We no longer have the luxury of pursuing failed approaches," said "We must rethink the U.S.-China economic relationship. We must act, not just talk."(Additional reporting by Doug Palmer; editing by Mohammad Zargham)
Beijing, Tokyo move to bypass US dollarYen-yuan trade plan to cut dependence on American currencyTOKYO — Japan and China will promote direct trading of the yen and yuan without using United States dollars and will encourage the development of a market for companies involved in the exchanges, the Japanese government said on Sunday after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing.Tokyo will also apply to buy Chinese bonds next year, allowing the investment of yuan that leaves China during the transactions — the yuan is a denomination of the renminbi. The move lessens demand for the US dollar and therefore its value and importance, especially considering the size of the Chinese and Japanese economies, the world’s second and third largest economies, respectively.China is Japan’s biggest trading partner with ¥26.5 trillion (S$439.4 billion) in twoway transactions last year, from ¥9.2 trilliona decade earlier. “Given the huge size of the trade volume between Asia’s two biggest economies, this agreement is much more significantthan any other pacts China has signed with other nations,” said Mr Ren Xianfang, a Beijing-based economist with IHS Global Insight.China also announced a 70 billion yuan (S$14.3 billion) currency swap agreement with Thailand last week as part of a plan outlined in October to promote the use of the yuan in the Association of South-east Asian Nations (ASEAN) and establish free trade zones.The move to strengthen market cooperation “benefits the ease of trade and investments between the two countries”, Chinese Foreign Ministry spokesman Hong Lei said yesterday. “It strengthens the region’s ability to protect against risks and deal with challenges.”Beijing’s concern over the volatility of the US dollar is well known, with Chinese Premier Wen noting he was concerned by the US Federal Reserve’s adoption of a loose monetary policy in the wake of the financial crisis.Washington’s failure to preserve the US dollar’s value has prompted emerging countries such as China and Russia, as well as Saudi Arabia and South Korea, to challenge the greenback’s status as the global currency benchmark. The Japanese and Chinese governments said that encouraging direct yenyuan settlement should reduce currency risks and trading costs.The pacts between Beijing and Tokyo also mirror attempts by fund managers to diversify as the two-year-old European debt crisis keeps global financial markets volatile. The yuan traded in Hong Kong’s offshore market gained 0.5 per cent offshore last week and touched 6.3324 per US dollar, the strongest level since trading started in July last year. Its discount to the exchange rate in Shanghai narrowed to 0.1 per cent, from a record 1.9 per cent on Sept 23.Yesterday, the yuan gained 0.05 per cent in Shanghai to 6.3330 per dollar and was little changed at 6.3450 in Hong Kong. It strengthened 4.3 per cent this year, the best-performing Asian currency excluding the yen. The currency is allowed to trade 0.5 per cent on either side of that rate. - Bloomberg
