Following heated debates about China’s suppressed currency value, the US government seems to have arrived at some sort of truce with the trading partner for now.
Treasury Secretary Geithner recently made an announcement placing China’s currency policy in a favorable light. The announcement comes after President Barack Obama’s meeting with the Chinese President Hu Jintao, leading to the impression that the outcome of the meeting may be positive to some extent.
China has been under fire from US policy makers and business heads for deliberately keeping its currency, the Yuan, undervalued. This gives the Chinese an unfair advantage in exports in the global marketplace. For the US, it means that businesses based here are at a disadvantage when competing with the Chinese, who can sell at lower prices owing to the under valuation.
If the Yuan is to be valued accurately it’s value would be fixed by market forces and this will allow US products to compete on a level playing field. Widespread protests against the alleged undervaluation have marked every US-China dialogue in the recent past. Along with other issues like the expected pull out of Google from China, this is a major cause for strained relationships between the two countries.
The Treasury Secretary is optimistic about the results of the president’s discussion wherein the currency devaluation was a major item on the agenda. He reiterated that China would soon realize that letting the Yuan find its true value, driven by market forces, will also be beneficial to the country’s economy in the long run. He said that excessive dependence on external purchasing may prove unhealthy for the Chinese economy. Once the focus shifts to domestic demand and consumption, China will become a more sustainable economic force.
As far as the global markets are concerned, a healthy market place with freely traded currencies, and countries competing on an even field, will help keep prices in check and demand will be evenly spread out. Once that happens, major economies in the world can work more constructively to improve economic conditions. Geithner hoped that US policies will prompt the establishment of a more accurate valuation for the Yuan by China in the immediate future.
The US-China discussion came after the Chinese President Hu Jintao’s decision to visit Washington. The visit is being viewed as a positive step being taken by the Chinese government. In return, the US may refrain from labeling China a currency manipulator.