China’s currency policy is likely to come under fire if a bill introduced by a bipartisan group of senators in the US is accepted into the legal framework of the country. The legislation is aimed at prompting Obama’s administration to take effective and immediate action against countries like China, which have been suspected, for some years, of purposely pressuring down its currency to gain an edge in the international trade.
If the bill goes through, the Obama administration will have some muscle in forcing such countries to present a more realistic picture of their currencies. The focus of this bill, at present, is China, which has been in the news for currency manipulation before. In fact, both president Obama and his Treasury Secretary Timothy Geithner, have in the past aired their dissatisfaction with China over this issue. Both Geithner and Commerce Secretary Gary Locke are under pressure from members of both parties to take strong action in this matter.
The bill will make it mandatory for the US government to take steps against countries, which are found to be deliberately keeping their currency artificially low to optimize the profits from their exports. Undervalued currency can give a significant edge to a country in the global markets. The Yuan is, according to many policy and law makers, not realistically valued when compared to the dollar.
The basic provisions of the bill were outlined by Dow Jones Newswires ahead of its official release. Initial reviews of the bill reveal that the Treasury and the Commerce Department will have to establish well defined measures to curb this anti-competitive tactic adopted by any country.
At present, the administration in power can choose to ignore such acts by a country. However, if the new bill comes into force, an objective test will be applied to countries suspected of these acts. If any country fails to pass the test, retaliatory measures by the US government will have to be taken. These could include formal complaints to the WTO, restricting federal contracts and imposing additional duties.
The bill and the overwhelming support for its strong stand against China’s currency manipulation are expected to put Obama’s administration in a tight spot. While the president has expressed displeasure against China’s policies, the country is one of US’s largest creditors and has significant trade ties with it. Any move to antagonize the country will result in straining relationships which are already under considerable pressure of late.
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