US experts: China no currency manipulator

US economists and currency experts disagreed with the notion of labeling China a currency manipulator, a charge made by US President-elect Donald Trump during his campaign in the past year and half.

Trump's words recall those by Republican candidate Mitt Romney in 2012, who pledged to name China a currency manipulator on his first day in office if elected. He lost to Barack Obama in the election.

Trump has not talked about the topic after winning the election on Nov 8, but some pundits and news organizations have kept the subject alive.

"The accusation that China is manipulating its currency in order to gain an unfair advantage for its exports is not supported by economic facts," said Eswar Prasad, senior fellow at the Brookings Institution and professor of Cornell University.

Prasad said on Monday that for the past two years, China's central bank, the People's Bank of China, has in fact been intervening in currency markets to prevent the renminbi from falling too sharply in value against the dollar.

"Thus, China has been doing the US a favor by not letting the renminbi depreciate as much and as fast against the dollar as the markets seem to want," said Prasad, author of the 2016 book Gaining Currency: The Rise of the Renminbi, and the 2014 book

The Dollar Trap: How the US Dollar Tightened Its Grip on Global Finance.

Prasad said a formal charge of currency manipulation would be likely to elicit an immediate and aggressive counterstrike by the Chinese government.

"The risk is that such actions could spiral into a tit-for-tat series of restrictions on bilateral trade and investment flows that would hurt both economies," he said.

The Chinese currency extended its decline against the US dollar on Monday.

The central parity of the renminbi, also known as the yuan, against the dollar weakened for the 12th day in a row to 6.8985, the lowest in more than eight years.

Triggered by heightened expectations for a US interest rate hike, the yuan's retreat has accelerated since Trump was elected, according to the Xinhua report.

David Dollar, a senior fellow of the John L. Thornton China Center of the Brookings, said China is not a currency manipulator, according to the definition under US law.

"One criterion for currency manipulation is that a country is intervening in the foreign exchange market to keep the value of its currency low. China has been intervening to keep its currency high," he said on Monday.

"The new administration may want to discuss currency issues with China, but according to the IMF, the renminbi is fairly valued, so I am not sure what there is to discuss," Dollar said.

Fred Bergsten, senior fellow and director emeritus of the Peterson Institute for International Economics, was a leading critic of China's currency policy several years ago.

But on Friday he posted an article titled China is no longer manipulating its currency on the institute's website.

"I was among the first to call attention to the manipulation by the Chinese and others and to advocate strong action to counter it, but it must be recognized that the situation has changed dramatically over the past two years," said Bergsten, a former US assistant secretary of treasury for international affairs.

China has experienced large outflows of private capital that have driven its exchange rate down and indeed sparked market fears of disorderly renminbi devaluations, Bergsten said.

"To their credit, the Chinese have intervened heavily on the opposite side of the market: Instead of buying dollars to keep the renminbi weak, they have sold large amounts of dollars to prevent it from sliding further," he wrote.

"Their recent intervention has promoted US competitiveness rather than undermined it. Manipulation (including by other countries) has passed largely into remission," Bergsten said.

The US Treasury has been monitoring the Chinese currency according to new criteria adopted in 2015. In its announcement in October, the Treasury found China met only one of the three criteria used to determine its watch list, compared with two of three in April.

If China still meets only one condition in the next report, it could be removed from the watch list, according to a Wall Street Journal report.

"It would thus be factually incorrect, as well as ineffectual, for the new Trump administration to label China a currency manipulator," Bergsten wrote.