Changes already underway in China "will gradually erode" the country's ability to closely manage the value of its currency and force the renminbi to float more freely on world markets, the U.S. Treasury said yesterday in a report that declined to cite China as a "currency manipulator."
As in previous biannual Treasury reports on world currencies, the document released Friday addressed the politically contentious issue of China's currency management, which critics argue is used to keep the country's exports unfairly cheap.
Members of Congress and others have urged the Obama administration to brand the country a "currency manipulator," which, under U.S. law, would trigger negotiations and possible sanctions.
But like his predecessors, Treasury Secretary Timothy F. Geithner has tried to resolve the issue through diplomatic channels - criticizing Chinese policy and urging them to make changes without formally invoking U.S. law.
With U.S. unemployment still at 9 percent, the issue has become particularly sensitive, but the latest Treasury document noted that China's currency has appreciated modestly this year - by close to 4 percent in nominal terms, but by much more than that if the impact of inflation is included.
In addition, the document noted that China was taking steps to liberalize how the renminbi can be bought and sold overseas - one of a number of reforms that Treasury concludes will make it increasingly difficult for Beijing to manage its exchange rates.
"These reforms will gradually erode the controls that help the authorities manage the level of the exchange rate and, over time, will contribute to a more market-determined exchange rate," the report concluded.