Money People Hope China and U.S. Get Along Better Fast

The fear is that the U.S. and China continue to tals past each other….

By Alan Wheatley
The International Herald Tribune

China has just ushered in the Year of the Ox, which is typically associated in the lunar calendar with calm, fortitude and success through toil.

That’s just as well, for China and the United States will need great calm and fortitude if they are to repair, through hard work, the damage done by the accusation of the new U.S. Treasury secretary, Timothy Geithner, that Beijing manipulates its currency.

Now, it is true that the yuan’s exchange rate is controlled by the People’s Bank of China. How else did the central bank accumulate nearly $2 trillion in reserves? Was it by accident that the yuan rose 20 percent against the dollar over three years only to become rooted to the spot since last July?

Of course not. China, with extensive capital controls, actively manages its exchange rate.

But manipulation is a dirty word in currency diplomacy. If the Treasury were to determine in its next report to Congress in the spring that China manipulated the yuan, it would be obliged under U.S. law to begin negotiations with Beijing on the issue.

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