The View | Why US claims that China is a currency manipulator are groundless

The yuan has appreciated significantly since the global financial crisis, and a review of China’s policy decisions show that it has, in fact, done more than any other major economy to honour its commitment to hold the value of its currency

Reading Time:3 minutes

A bank employee in Haian, Jiangsu province, counts US dollar banknotes next to a stack of Chinese yuan notes. By accusing China of currency manipulation, the US is ignoring reality and applying double standards. Photo: Chinatopix via AP

Published: 3:00am, 5 Sep 2019Updated: 4:44am, 5 Sep 2019

Last month, the US Treasury Department designated China a currency manipulator. China is also accused of breaking its promise made at the G20 summit not to engage in competitive devaluation. In fact, China has done more than any other major economy in honouring its commitment to hold the value of its currency.

The renminbi’s effective exchange rate index has appreciated significantly since the global financial crisis. According to the Bank for International Settlements, from early 2009 to July this year, the real effective exchange rate (REER) indices of three of the currencies currently in the International Monetary Fund’s special drawing right basket – the US dollar, renminbi and British pound – have appreciated by 10.1 per cent, 17.8 per cent and 0.3 per cent respectively. The REER indices of the other two currencies in the basket, the euro and the yen, have fallen by 13.3 per cent and 27.2 per cent respectively.

During the same period, the nominal effective exchange rate (NEER) indices of the US dollar and renminbi have increased by 14.7 per cent and 11.9 per cent respectively, while that for the euro, yen and pound have decreased by 2.6 per cent, 11.4 per cent and 2.9 per cent respectively.

In that time, China's external economic sector has been rebalanced, and economic growth is now driven more by domestic demand than external demand. Since 2015, the IMF’s Article IV Consultation reports have concluded that the renminbi exchange rate is basically in line with China’s economic fundamentals.

China's exchange rate marketisation was interrupted by the global financial crisis. Following reforms in July 2005 – when China moved to a managed floating exchange rate regime, based on market supply and demand with reference to a basket of currencies – the renminbi exchange rate has been increasingly flexible.

During the first three quarters of 2008, the Chinese currency appreciated by 7.1 per cent. Unfortunately, at the end of 2008, the US subprime debt crisis evolved into a global financial tsunami. As a result, Beijing had to keep renminbi fluctuation within a tight range until reforms in June 2010.