WASHINGTON — Days after China announced it would gradually make its exchange rate more flexible, a coalition of industry, agriculture and worker organizations urged Congress to quickly pass legislation on the currency issue Monday.
The legislation, called the Currency Reform for Fair Trade Act of 2009, H.R. 2378, seeks to end the practice of currency misalignment by the US’ trading partners. The Fair Currency Coalition, which has endorsed the bill, wants Congress to enact tariffs to combat prolonged misalignment as soon as possible.
The bill has a total of 117 House sponsors and cosponsors, including US Representatives Tim Ryan and Tim Murphy.
In March, a similar bill, called the Currency Exchange Rate Oversight Reform Act of 2010, was introduced by Sens Charles Schumer, Debbie Stabenow and Lindsey Graham. It currently has 19 Senate sponsors and cosponsors.
“China is all talk and little action with respect to ending the persistent undervaluation of the renminbi,” said Fair Currency Coalition Executive Director Charles Blum in response to the People’s Bank of China announcement over the weekend. “The PBOC’s statement is too little too late.”
He said the coalition agrees with Sens Schumer and Ryan that Congress must pass legislation to enact the tariffs.
“China’s predatory currency policy has destroyed too many US jobs and discouraged too much investment in the United States for Congress to delay action any longer,” Blum said.
The coalition argued in a statement that Congress should be skeptical of what the Chinese authorities claim.
“Even if China allows the RMB to rise by 3-5 percent over the next few months, it would come nowhere close to eliminating the RMB’s estimated 35-40 percent undervaluation relative to the US dollar,” he said. “Enhanced ‘flexibility’ is not the goal of the FCC. Bringing the RMB’s value into line with market forces is. Flexibility can be a means to that end, but it is not a substitute for a properly valued RMB.”
Sen Schumer said he would move forward on legislation to penalize China for undervaluing its currency.
“Just a day after there was much hoopla about the Chinese finally changing their policy, they are already backing off,” he said in a statement.
But Derek Scissors, research fellow in Asia Economic Policy at the Asian Studies Center at the Heritage Foundation, said a double-digit revaluation of the yuan could again widen Sino-US trade imbalances like it did 2005-2008.
“From mid-2005 to mid-2008, when the yuan-dollar peg was supposedly first broken, global imbalances worsened considerably. This helped trigger the current financial crisis. If that fraudulent de-pegging is repeated, the whole process may be repeated, including another global contraction,” he said.
“The Congress could again get what it thinks it wants: a double-digit revaluation of the yuan against the dollar, if a very slow one. But it would again not have the effect Congress wants.”
He said what the US and the world need from China is true progress toward independent currency, which would strike a blow against imbalances, in particular slowing the accumulation of dollars in Beijing’s hands and encouraging Chinese consumption in the long term.