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October 15, 2010    

Currency tensions escalate between China and US

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by Kay Murchie
”Currency

China has today hit back at the US saying it will continue to reform its currency policy - but at its own pace.

The US has been pressuring China to let the value of its currency, the yuan, appreciate against other currencies.

In June, Beijing loosened its currency peg and, while the move was welcomed, the US recently remarked that the yuan had appreciated just 2.65% against the dollar since that time.

The US argues that China is keeping the value of the yuan low to help its exporters at the expense of overseas competitors.

Trade groups have argued that the yuan, also referred to as the renminbi, is kept up to 40% below what its value should be against the US dollar.

Many have already referred to China as a currency manipulator but China has defended its actions and said keeping the yuan stable is “an important contribution” to global recovery and if the yuan appreciates by 20% to 40%, China is concerned that many companies will go bankrupt.

The US House of Representatives recently backed a bill which will allow it to impose retaliatory tariffs on China.

However, China said the bill contravened World Trade Organisation (WTO) rules.

Today, however, China warned the US again and said the yuan’s weakness against the dollar must not be used as a “scapegoat” for its high unemployment and sluggish economic growth.

China’s remarks from the Ministry of Commerce came shortly before the US was due to publish a report on whether it considers China to “officially” be a “currency manipulator”.

As tensions grow, though, there are fears of a protectionist trade war.

Currency issues are a concern in many countries at the moment. The Japanese yen is currently hovering around 15-year highs against the dollar.

Last month, the Bank of Japan (BoJ) intervened to stem its currency against the dollar – the first time in six years that such action had been taken and the Bank is expected to intervene again.

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