Canada Will Be `Relentless' in Pressuring China on Yuan After G-20 Meeting

(Bloomberg – Paul Badertscher)
Canadian policy makers said they will be “relentless” in keeping pressure on China and other economies with fixed exchange rates to allow their currencies to appreciate, following meetings with colleagues from the Group of 20 nations last weekend.

Finance Minister Jim Flaherty and central bank Governor Mark Carney said that while the G-20 made progress on promoting flexible currencies and other issues, they remain a long way from the ultimate goal. “We’re not satisfied with the degree of exchange rate flexibility, the moves on exchange rate flexibility, in key emerging markets,” Carney said in an interview following the meeting in Gyeongju, South Korea. Read more here.

Why Currencies Aren’t the Issue

(CBC News)

As G20 finance ministers prepare for meetings in Seoul starting Friday, economists have been assessing the odds of a global currency war.

In a commentary Tuesday, European banking giant BNP Paribas took the threat seriously enough to try to reassure markets that countries would unite to avoid currency jockeying. “The chance of an agreement has increased as the International Monetary Fund uses its influence to convince G20 participants that an agreement is a must,” it said.

But Perry Sadorsky, associate economics professor at York University’s business school in Toronto, said the rhetoric about currency wars is a distraction from the real threat. “Competitive devaluations of national currencies are a reaction to a more pressing problem,” Sadorsky told CBC News.

And that is how to get the global trade in goods, services, savings and investment back in balance. Read more here.

Canada Presses China to Stop Subsidizing Exports

(CTV News)

Canada joined a growing chorus of industrialized nations calling on China to stop keeping its currency artificially weak, warning Saturday that it could endanger the global economic recovery. Finance Minister Jim Flaherty said that China's policy of keeping the value of the yuan low will hurt manufacturers in Canada as well as the United States.

"If other countries are subsidizing their exports and we're not, then we're at a competitive disadvantage," Flaherty told a media round-table during meetings of the International Monetary Fund in Washington. "We do not want to see Canada disadvantaged by other countries unfairly taking advantage of artificially inflexible currencies."

Finance ministers and central bankers from the IMF's 187 member states are in Washington this weekend to discuss a looming "currency war," an escalating economic dispute between rich nations on one side and China and developing nations on the other. Artificially manipulating currencies may endanger the fragile global economic recovery, industrialized nations have warned. Read more here.

Approaching Trade War Threatens Logistics Sector

(Transport Intelligence – Thomas Cullen)

“A currency war” is how the finance minister of Brazil described the competitive devaluation between major economies over the past year. Particular attention has been paid to the Chinese currency peg to the dollar, yet a number of nations are busy selling their own currency. Switzerland, Japan and South Korea all have huge trade surpluses yet have moved to depress the value of their currency.

This sort of behaviour has provoked the anger of the US. A bill is now moving through Congress that is designed to impose sanctions on the Chinese in order to retaliate. The US Treasury Secretary Timothy Geithner has just described China’s currency policy as a “dangerous dynamic”. Even comparative neutrals such as Dominique Strauss-Kahn at the IMF and Robert Zoellick at the World Bank have criticised the Chinese over their currency strategy and the role it plays in the huge imbalances of trade. Some form of trade conflict seems likely.

Read more here. (Subscription required.)

China Currency Bill Passes House, Senate Vote Planned for November

(World Trade Interactive)

The House of Representatives approved by a 348 to 79 vote Sept. 29 the Currency Reform for Fair Trade Act (H.R. 2378), which would allow an undervalued foreign currency to be considered a government subsidy that can be offset with countervailing duties on imports of specific goods from the offending country. A related bill in the Senate could be voted on after the congressional elections in November. The White House has not taken a position on either bill but acknowledged this week that the House action highlights the importance of this issue.

Supporters of H.R. 2378 say it will help reduce the U.S. trade deficit with China and boost domestic manufacturing employment, both issues projected to score well with voters still concerned about the struggling economy. Several key lawmakers said this week that one of the objectives of moving the bill forward is to give the Obama administration more leverage in its unilateral and multilateral efforts to convince China to let its currency appreciate. In recent weeks the president and Treasury Secretary Timothy Geithner have both pressed Chinese leaders more than ever on this issue, but Beijing has maintained its position that it will manage the yuan according to China’s interests and not outside pressure. Read more here.

China Surplus May Exceed $20 Billion, Stoking Yuan Tension

(Bloomberg)

China may tomorrow say that its trade surplus topped $20 billion for a third month in August in a report that risks stoking American lawmakers’ calls for protection from Chinese imports.

Exports probably exceeded imports by $26.9 billion, compared with $15.7 billion in the same month a year earlier, according to the median of 34 forecasts in a Bloomberg News survey. Shipments abroad gained 35 percent and imports grew 27.5 percent, according to the survey.

The U.S. House Ways and Means Committee will discuss next week China’s currency policy after Premier Wen Jiabao’s government limited the yuan’s gain to less than 1 percent versus the dollar since a June pledge for greater flexibility. With November elections looming, legislators may push a bill letting companies seek tariffs for compensation for an undervalued yuan. Read more here.

C$ Hits 3-Week High On Rate Expectations

(Reuters)

The Canadian dollar extended gains against its U.S. counterpart on Thursday to its strongest level in three weeks a day after the Bank of Canada raised interest rates for a third straight time and sounded surprisingly hawkish in its outlook.

The central bank nudged its overnight rate target up 25 basis points to 1 percent and, contrary to most economists’ expectations, did not signal a pause at its next scheduled decision in October. It said rates remained “exceptionally stimulative” but kept all options open due to doubts about the U.S. and global recoveries.

“This is follow through on what’s perceived to be the Bank of Canada leaving the door slightly ajar to more hikes,” said Firas Askari, head of foreign exchange trading at BMO Capital Markets. Read more here.

China Slams Allegations of Exchange Rate Subsidies

(AFP)

China dismissed allegations by US producers over its exchange rate as “groundless” on Wednesday, as Washington said there was no evidence that the undervalued yuan constituted a state subsidy.

The US Commerce Department said Tuesday it found insufficient evidence to probe allegations that China’s undervalued currency is the equivalent of a state subsidy to its manufacturers. The allegations were made by US producers angry about imports of aluminum products and coated paper from China.

“We noted the ruling made by the US Commerce Department... according to the related agreements of the World Trade Organisation, foreign exchange issues do not constitute subsidies,” China’s Commerce Ministry said. “We hope the US side will continue to follow WTO rules on cases of trade remedy and carry out (trade) probes in a prudent way,” it said in a statement, adding that specific allegations against the Chinese products were “groundless.” Read more here.

China Flexes Its Currency Muscles

(Joong Ang Daily)

Beijing took an important step last week by turning the renminbi into a global currency

China has now surpassed Japan in terms of nominal second-quarter gross domestic product, emerging as the world’s second largest economy after the U.S. The news is hardly surprising. It had been widely expected and was just matter of time.

But the global market was enthralled with different news from China last week. The People’s Bank of China announced on Monday measures to liberalize the bond market, allowing foreign central banks and commercial banks to invest their yuan holdings in sovereign debt as well as corporate bonds on the Chinese interbank bond market. The world’s second largest economy is now pitching its debt as equally attractive as U.S. Treasury bonds. The goal is to widen the international role of the Chinese currency and make it as accessible as the U.S. dollar. Read more here.

Lawmakers Seek to Drum Up Support for House Vote on China Currency Bill

(World Trade Interactive)

Reps. Tim Ryan, D-Ohio, and Tim Murphy, R-Pa., are working to obtain their colleagues’ signatures on a letter calling on House leaders to bring the Currency Reform for Fair Trade Act (H.R. 2378) to the House floor for a vote. According to a draft of the letter, this bill would direct the Department of Commerce to treat currency undervaluation as a prohibited subsidy, which would allow the imposition of antidumping or countervailing duties on injurious imports from any country that persistently undervalues its currency. The letter asserts that this measure has been written to be consistent with U.S. rights and obligations as a member of the World Trade Organization and the International Monetary Fund. Read more here.

PBoC Official Says China Will Allow Yuan To Weaken If Necessary

(RTT News)

The People’s Bank of China will allow the country’s currency to depreciate against the U.S. dollar to support exporters if necessary, a central bank adviser said.

In an interview with Japan’s daily Asahi Shimbun, published Wednesday, PBoC official Zhou Qiren said the central bank cannot allow the exchange rate to fluctuate too quickly, as China’s export-oriented companies will not be able to cope with it. What is most important is to show exporters and importers that the exchange rate of renminbi does indeed fluctuate, he added.

In June, the Chinese government said it would loosen its exchange rate regime, although it ruled out a large one-off revaluation. The yuan has gained around 0.8% against the dollar since then. Read more here.

US Sen. Grassley Urges WTO Case on China Currency

(Reuters)

A top Republican senator on Thursday criticized President Barack Obama’s administration for deciding not to label China a currency manipulator and called for a formal trade case against Beijing on the issue.

“Everyone knows China manipulates its currency. If the President continues to avoid acknowledging China’s currency manipulation and fails to address it in a meaningful way, Congress will have to act,” Senator Charles Grassley, an Iowa Republican, said in a statement.

“I reiterate my call for the administration to bring a case against China’s currency manipulation at the World Trade Organization,” he said.

Related: Treasury Won’t Cite China on Currency: Sources

China Pre-empts Critics with Currency Pledge

(Globe & Mail)

Surprise vow to let yuan gradually rise designed to ease increasing pressure from world leaders ahead of G20 summit

China has moved to fend off a barrage of expected criticism against its economic policies from world leaders at this week’s G20 summit in Toronto by issuing a surprise pledge to let its currency gradually rise against the U.S. dollar.

However, despite the promise, the yuan opened Monday at exactly the same rate that it has spent every day since July, 2008, at about 6.83 to the U.S. dollar. The People’s Bank of China said on its website Sunday that despite the new policy, the value of the yuan would remain “basically stable.”

Markets in Japan and South Korea, however, were up in early trading, reflecting the optimism felt by foreign manufacturers who saw the yuan’s artificially low value as giving Chinese exporters an unfair advantage.

The unexpected promise on the weekend from China’s central bank to allow for a gradual increase in the value of the yuan will serve to defuse mounting political tensions over China’s long-standing policy of keeping its currency artificially low to boost the economic performance of its key export sector. Read more here.

Related:
• Yuan appreciation not guaranteed (Financial Post)
• China Unshackles Yuan Ahead of G20 (Reuters)

China Says Yuan Rise Can’t Solve Sino-U.S. Trade Gap

(Business Week/Bloomberg)

Appreciation of China’s currency won’t resolve the Sino-U.S. trade imbalance or the consumer debt, low savings rate and unemployment in the world’s largest economy, Qin Gang, spokesman for the Chinese foreign ministry said today.

China will reform its exchange-rate mechanism based on developments in the global economy and its own economic performance, Qin said in a statement on the foreign ministry website.

U.S. lawmakers said this month they will go ahead with legislation targeting the yuan just as leaders of both countries prepare to meet this month at a Group of 20 nations summit in Toronto. The Senate will vote “soon” on a measure aimed at getting China to raise the value of its currency, Senator Charles Schumer of New York told Treasury Secretary Timothy F. Geithner at a hearing on June 11. Read more here.

China May Reform Its Currency as Exports Surge Again

(Press Trust of India)

China’s exports surged by 48.5 per cent year on year in May, triggering speculation that the much awaited reform of its currency Yuan against the US dollar is round the corner. Imports too climbed 48.3 per cent, China’s General Administration of Customs (GAC) announced on June 10.

In value terms exports totalled $131.76 billion in May, while imports totalled $112.23 billion.

The US and the EU accuse China of making windfall profits out of its exports by pegging its currency deliberately low that makes its exports cheaper. […]

Chinese President Hu Jintao promised reform during last month’s US China Strategic and Economic Dialogue, which was expected to be implemented in a gradual manner.

Economists said the reforms are likely to coincide with the forthcoming G20 summit on June 26-27 in Toronto, Canada and would be implemented on a gradual basis rather than a one-off revaluation, state run China Daily reported on June 10. Read more here.

Chinese Exporters Ditch Wounded Euro For Dollars

(Reuters)

Chinese exporters who made a big push only a year ago to bill in euros are increasingly turning their backs on the wounded European currency and demanding dollars instead.

By contrst, Beijing last week said a report it was reviewing the euro portion in its mountain of foreign exchange reserves was groundless and it calmed markets by saying that Europe remained a key investment market.

But Chinese exporters and the local governments that oversee them are less confident. They are trying to keep a wider berth from the euro, at least for now. Read more here.

Canadian Dollar Rallies After Record Jobs Data

(Reuters)

Canada’s dollar shot up one U.S. cent on Friday after a stronger-than-expected jobs report showed a record number of Canadians returned to work in April, adding pressure on the Bank of Canada to raise rates soon.

The currency firmed to a session high of C$1.0338 to the U.S. dollar, or 96.73 U.S. cents, from about C$1.0448, or 95.71 U.S. cents just before the data’s release.

Statistics Canada on Friday said the economy added 108,700 jobs in the month, the highest since Statscan began tracking the data in 1976 and exceeding even the most upbeat estimate in a Reuters poll which yielded a median forecast of 25,000 new jobs. Read more here.

Top Exporter Worry? Dollar Swings

(Globe and Mail)

Forget rising interest rates. Exchange-rate fluctuations are the top concern among Canadian exporters for the coming months, a survey showed Wednesday.

In the next half year, 58 per cent of exporters say volatile currency movements are the top barrier to growth, a HSBC global survey on trade confidence showed. It’s the first time the survey included responses from Canada.

The Canadian dollar has climbed 14 per cent in the past year, and hit parity last month. Concerns about European sovereign debt, however, have weighed on the loonie lately, which is now trading at a two-month low of 96.98 cents (U.S.).

“Fluctuations in exchange rates represent the biggest barrier to trade,” the report said. Canadian businesses are “cautiously optimistic” about trade growth and the global economy, while emerging markets such as Brazil and Indonesia tend to be the most confident. Read more here.

Related: Canadian Dollar Sinks Further On Euro Zone Crisis Fears (Reuters)

Brazil will Impose Import Levies to Face “Cheap” US Dollar, Unless Accord is Reached

(MercoPress)

Brazil’s government may take additional steps to limit gains in the local currency (Real) should advanced economies favor policies that keep their currencies weak, Finance Minister Guido Mantega said. “We will take further measures if we don’t reach an agreement” Guido Mantega said in New York. Last year, Brazil implemented a tax on foreign purchases of stock and fixed-income investment in a bid to stem the currency’s advance.

Mantega said he was “worried” after last weekend’s International Monetary Fund (IMF) meetings in Washington, where officials from the US and other developed nations said they intend to keep their benchmark interest rates low. Reduced lending rates can weaken currencies by prompting investors to shift their money to countries where rates are higher.

“I told my colleagues we won’t just watch the deterioration of our situation,” Guido Mantega said. A stronger Real would put Brazilian exporters at a disadvantage by making their goods more expensive in dollar terms. After gaining over 30% last year, the best performance against the US dollar among the 16 most traded currencies tracked by Bloomberg, the Real has lost 0.1 percent in 2010. Read more here.

EU Expects Yuan to Gradually Appreciate

(Wall Street Journal – Andrew Batson)

European Union Trade Commissioner Karel De Gucht said he expects China to make gradual adjustments to its exchange rate over time, but doesn’t think that trade actions or other outside pressure will speed up the process. Mr. De Gucht met with Chinese Commerce Minister Chen Deming in Beijing Tuesday, and said he had argued that a change in China’s currency regime would be beneficial to both Europe and China. But Mr. De Gucht, who was meeting his Chinese counterpart for the first time since being named Europe’s trade envoy in February, didn’t hold out hopes for a quick resolution of an increasingly sensitive issue.

“I think we will have to wait some time. What I would expect is that you would see a gradual adjustment of the yuan,” he said. “I really think they are only going to do it provided it is beneficial to their own economy. I think they will have to come to the conclusion that it is – if not, all the problems we witnessed before the crisis will come back.”Read more here.