21 June 2010

Obama Praises Shift in Chinese Currency Exchange Policy

More flexible yuan will help balance the global economy, president says

China’s currency, the yuan, had been pegged only to the U.S. dollar since 2008, allowing it to remain undervalued.

By Stephen Kaufman
Staff Writer

Washington — The Obama administration welcomed China’s decision to allow its currency, the yuan, to have more flexible exchange rates by allowing several foreign currencies to determine its value, rather than pegging its exchange rate solely to the U.S. dollar.

“China’s decision to increase the flexibility of its exchange rate is a constructive step that can help safeguard the recovery and contribute to a more balanced global economy,” President Obama said in a June 19 statement. “I look forward to discussing these and other issues at the G20 Summit in Toronto next weekend,” he added.

In July 2008, during the global economic slowdown, China fixed the value of the yuan to the dollar, which helped to protect its export market as global demand for consumer goods declined. But critics argued that the policy unnaturally undervalued the yuan, which made China’s exports cheaper and gave Chinese companies an unfair advantage over their foreign competitors, which led to job losses outside China.

By including several other currencies besides the U.S. dollar to determine its value, the yuan is expected to grow stronger and be able to appreciate in value against the U.S. dollar.

U.S. Treasury Secretary Tim Geithner, in a June 19 statement, urged “vigorous implementation” of China’s more flexible currency policy. By doing so, China “would make a positive contribution to strong and balanced global growth,” he said.

Geithner and other U.S. officials had been urging China to reform its exchange rate mechanism. At the conclusion of the U.S.-China Strategic and Economic Dialogue in Beijing May 25, Geithner said Chinese leaders had recognized that such changes constituted an important part of their country’s broader economic reform agenda.

“Allowing the exchange rate to reflect market forces is important not just to give China the flexibility necessary to sustain more balanced economic growth with low inflation but also to reinforce incentives for China's private sector to shift resources to more productive higher-value-added activities that will be important to future growth,” he said.

Speaking to reporters in Beijing June 21, U.S. Ambassador to China Jon Huntsman praised China’s move as “a genuine attempt … to address its exchange rate mechanism.”

The Chinese decision “takes an irritant off the table in U.S.-China relations," Huntsman said, according to press reports.

He also said the increased ability of U.S. exports to compete with Chinese goods would help create critically needed jobs in the United States.

"When you start to consider that every billion dollars in exports creates 22,500 jobs, that's a very big deal at a time when we're facing high rates of unemployment," the ambassador said.

(This is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://www.america.gov)