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Monday, April 07, 2014 9:12 PM


US Treasury Warns China Over Yuan Depreciation; Treasury Hypocrites; What If?


In yet another case of blatant US hypocrisy, Bloomberg reports U.S. Treasury Warns Against China Reviving Yuan Controls.

A backtracking by China in its commitment to move toward a market-determined exchange rate for the yuan would provoke serious concern in the Obama administration, a U.S. Treasury official said.

China allowed the yuan to depreciate before widening the exchange-rate band on March 17. The changes occurred as China continued to build current-account surpluses, accumulate excessive foreign reserves and attract significant net foreign-direct investment, the official said today on condition of anonymity.

Since the start of this year, the People’s Bank of China has guided a 2.5 percent loss on the yuan to help curb speculative bets on appreciation of the currency, according to Nomura Holdings Inc.
Similarly, Reuters reports U.S. Warns China Over Currency Depreciation
The United States warned Beijing on Monday that the recent depreciation of the Chinese currency could raise "serious concerns" if it signaled a policy shift away from allowing market-determined exchange rates.

Washington has been pressing China for years to allow its currency to trade at stronger values. A weak yuan makes Chinese exports cheaper for U.S. consumers at the expense of U.S. producers. A weaker yuan also makes Chinese consumers less able to buy foreign goods.

Last month, U.S. Treasury Secretary Jack Lew welcomed a decision by China to allow its currency to vary more against the dollar in daily trading.

Monday's comments by a senior official from the Treasury Department suggested the United States was not completely sold on China's intention to reduce authorities' interventions in exchange markets.

"If the recent currency weakness signals a change in China's policy away from allowing adjustment and moving toward a market-determined exchange rate, that would raise serious concerns," the official, who asked not to be named, told journalists in a phone call.

In comments that outlined U.S. positions before meetings later this week of the International Monetary Fund and between Group of 20 nations, the official noted the widening of China's currency trading band came just after a drop in the yuan's value that coincided with reports of "considerable intervention" in exchange markets by Chinese authorities. That is exactly the sort of behavior Washington wants Beijing to ditch.
What If?

What if China floated the yuan? Is it really clear given the massive Chinese malinvestments in housing, in SOEs, in infrastructure,  and numerous other things, that anyone knows for certain which way the yuan would trade if it freely floated?

Actually, no one can be certain of anything. That statement holds true even if there were no Chinese malinvestments in housing, in SOEs, in infrastructure, etc.

Rigged Casino

The US wants China to widen its trading band on one and only one condition: the yuan rises vs the US dollar.

Treasury Hypocrites

US hypocrites say nothing about Japan's all-out attack on the Yen. Moreover, and more importantly,  I have a simple question:

Why is massive QE in the US acceptable when the sole intent is to drive the dollar lower and US asset prices higher?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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