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Us treasury may name currency manipulators { October 29 2003 } Original Source Link: (May no longer be active)
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US Treasury may name currency manipulators
By Alan Beattie
Published: October 29 2003 21:13 | Last Updated: October 29 2003 21:13
John Snow, US Treasury secretary, appears on Thursday in front of a congressional committee to present the Treasury's annual currency report, facing pressure to step up its campaign against Asian countries manipulating their exchange rates.
In compiling the report, whose publication has been delayed two weeks, the administration has had to decide whether formally to name countries such as China and Japan as manipulators of their currency.
Such a designation has not occurred for years, but with the administration facing political pressure over its trade deficit with Asia and the perceived loss of jobs to China, it has become a real possibility.
Designating countries as manipulators would head off criticism from Democrats and some parts of the business community. Paul Sarbanes, the senior Democrat on the Senate banking committee, which will question Mr Snow on Thursday, recently joined four Democratic colleagues in signing a letter calling on the administration to name China and Japan.
"Currency manipulation is completely contrary to all the rules that are supposed to govern trade relationships," Mr Sarbanes said. "We think the administration needs to step up to the plate."
But there are practical and strategic reasons for holding off from formally naming Asian countries as currency manipulators.
For one, the decision may make little practical difference. Naming manipulators merely requires the US administration to enter into negotiations with them - a strategy that, with China and Japan, the administration is already following.
Moreover, naming only China and/or Japan would raise awkward questions about why US diplomatic allies such as South Korea and Taiwan, which have been openly intervening against their own currencies, were not also criticised. It would also look odd suddenly to name China for continuing to peg its currency to the dollar, given it has followed the policy for years.
Moreover, while the Japanese have not given up on intervening to hold down the yen since the Group of Seven statement in Dubai last month calling for flexible exchange rates, they have at least apparently stopped trying to defend a level of around Y115 to the dollar.
Earlier this month, John Taylor, the US Treasury's top international official, declined to criticise even a Japanese move to intervene through the New York Fed to weaken the yen, which was seen by many market economists as a clear snub to the US. "[Our] relationships with Japan and their finance ministry there are very good," he said.
If Asian countries suddenly stopped intervening altogether in response to heightened pressure, it could turn the dollar's recent orderly slide into a destabilising rout. Indeed, some signs suggest the US administration has decided to ease off for the moment.
President George W. Bush, on his recent tour around Asia, largely soft-pedalled the currency question, concentrating instead on security issues. The fact that Thursday's currency report was delayed for two weeks may also reflect a desire to stop conflicts over currencies overshadowing the Asia tour - though Republicans on the Senate banking committee deny it was postponed at the administration's behest.
And the strategy that some analysts suspect the administration was playing - to focus on currencies as a lever to get concessions on trade - appears to be working. Chinese officials said this week they were considering buying costly items such as Boeing aircraft, which should reduce the US trade deficit with China.
Tom Gallagher, a political economist at the ISI Group consultancy in Washington, says he believes Thursday's report will criticise Asian countries without formally naming them as manipulators.
But the outcome is still uncertain: along with other analysts, Mr Gallagher suspects the key issue is whether the softly-softly approach favoured at the US Treasury will win out over the political motives prevalent at the White House. Thursday's report, and Mr Snow's testimony, will show which influence is dominant.
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