Sunday, June 20, 2010

Political frustration is building in the U.S. as China appeared to go back on weekend promises to allow its currency to rise in value.

Sen. Charles E. Schumer said Sunday that China’s gradual approach to lifting its currency peg amounted to “backing off” its promises, and urged strong legislation that might force further changes.

A day after announcing changes in its exchange-rate regime, China on Sunday explicitly ruled out a one-time revaluation of the yuan, which U.S. officials say is artificially and unfairly low.

“Just a day after there was much hoopla about the Chinese finally changing their policy, they are already backing off. It vindicates our initial skepticism,” said Mr. Schumer, New York Democrat and a prominent critic of China’s exchange-rate behavior.

U.S. officials have not yet decided whether to name China a “currency manipulator,” something that would lend support to any legislative effort to punish Chinese producers through tariffs and other trade barriers.

“We intend to move forward as quickly as possible with legislation,” he said. “It is only strong legislation that will get the Chinese to change and will stop jobs and wealth from flowing out of America as a result of unfair trade policies.”

On Monday, Beijing seemed to confirm Mr. Schumer’s criticisms by keeping the yuan exchange rate unchanged.

According to the official foreign exchange website Chinamoney.com.cn, the People’s Bank of China set the central parity rate - the center point of the currency’s allowed trading band - at 6.8275 to the dollar, the same as it was on Friday.

Even before Monday’s actions, China’s had left policymakers in the world’s key economies waiting to monitor the yuan this week for signs it is actually budging.

On Saturday, Beijing announced it would allow more flexibility for the yuan, signaling it was ready to break a 23-month-old peg to the dollar that has come under intense international criticism. But the country’s central bank Sunday explicitly ruled out a one-time revaluation, saying there was no basis for any big appreciation.

The group of 20 nations is set to meet in Canada to hash out a course for the future as the world gradually emerges from the worst financial crisis since the Great Depression.

“This announcement was timed to appease global leaders as we move toward the Toronto [Group of 20] meetings next weekend,” said Sherry Cooper, chief economist at BMO Capital Markets.

Analysts were expecting at most a modest change on Monday, given China’s Sunday backpedaling. Still, regional currencies such as the Australian dollar could see some sharp gyrations as investors try to figure out what to make of the policy shift.

“The currency will move only very gradually. I expect only about 0.2 percent a month until the situation in Europe stabilizes,” said Andy Rothman, a strategist at CLSA in Shanghai.

The European Central Bank and Jean-Claude Juncker, who heads the Eurogroup of eurozone finance ministers, had earlier welcomed in a joint statement the possibility that China would let the yuan rise in value.

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