Posts Tagged ‘currency intervention’

Trump’s Currency Complaints Hit Unexpected Targets

February 17, 2017

Top-five trading partners China, Japan and Germany brush them off; Taiwan and Switzerland seem to be paying heed


Feb. 17, 2017 3:47 a.m. ET

HONG KONG—U.S. President Donald Trump’s accusations of currency manipulation appear to be reaching an audience he may not have primarily intended.

Mr. Trump vowed on the campaign trail to revive American manufacturing, in part by taking a hard line on Chinese trade practices and labeling the country a currency manipulator. Since taking office, the president has accused both China and Japan of consistently devaluing their currencies,…

Mr. Trump vowed on the campaign trail to revive American manufacturing, in part by taking a hard line on Chinese trade practices and labeling the country a currency manipulator. Since taking office, the president has accused both China and Japan of consistently devaluing their currencies , while his top trade adviser Peter Navarro has accused Germany of benefiting from what he termed the “grossly undervalued” euro .

All three countries, which rank among the U.S.’s top five trading partners, have brushed off the Trump administration’s claims.

“No one has the right to tell us that the yen is weak,” Japan’s finance minister Taro Aso told parliament on Wednesday, following last weekend’s meeting between Mr. Trump and Prime Minister Shinzo Abe . Japan hasn’t directly intervened in currency markets since 2011 following a major tsunami and resulting Fukushima nuclear disaster.

“The charge that Germany exploits the U.S. and other countries with an undervalued currency is more than absurd,” Jens Weidmann , the president of the German central bank, said earlier this month.

China hasn’t directly commented on Mr. Trump’s criticisms, but most analysts say Beijing recently has been propping up the yuan by selling foreign-currency reserves rather than looking to weaken it.

Still, some smaller economies look like they are taking notice, notably Taiwan and Switzerland. The U.S. Treasury found in October that both had engaged in persistent, one-way currency intervention, essentially by buying foreign currencies like the U.S. dollar and selling their own to maintain weak exchange rates.

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Analysts say the central banks of Switzerland and Taiwan are now stepping back from those activities, perhaps to avoid closer scrutiny from the Trump administration. The upshot: The Swiss franc has advanced nearly 2% against the U.S. dollar this year, while the new Taiwan dollar has surged 5.3%. Both have outperformed the euro and yen since the U.S. election in early November.

Taiwan’s central bank bought $500 million in foreign currencies in the fourth quarter, well below its quarterly average of more than $3 billion since 2012, according to Khoon Goh , head of Asia research at ANZ in Singapore, who said he suspects it is stepping back from “currency-smoothing operations.” The central bank said it doesn’t comment on currency policy.

For the first nine months of last year, the Swiss National Bank /quotes/zigman/1379668/delayed CH:SNBN +0.12% intervened heavily in currency markets to slow the franc’s rise, spending an amount roughly equivalent to its current-account surplus for the period, J.P. Morgan/quotes/zigman/272085/composite JPM -0.76% analysts note. Over the following four months, the scale dropped to around two-thirds of the surplus.

“It’s not an entirely fanciful suggestion that the SNB might be tapering intervention in order to the guard against the risk of being cited by the U.S. Treasury as a currency manipulator,” the analysts wrote in a note.

The Swiss National Bank declined to comment.

For the U.S. to label an economy a currency manipulator under the current law, it must have a large trade surplus with the U.S. and a hefty current-account surplus and persistently intervene in the currency in one direction. As of October, no economies met all three criteria.

Recent comments from officials in South Korea, which the Treasury has flagged for its hefty trade surplus with the U.S. and its current-account surplus, suggest they’re similarly eager to avoid U.S. ire, says Govinda Finn , senior analyst at Standard Life Investments in Edinburgh. The Korean won has surged 5.2% against the dollar this year.

But any gains in the Korean and Taiwanese currencies due to U.S. political pressure may not last, he said: “On a longer-term horizon, there’s a pretty strong case to say both of those currencies can and will weaken as the authorities look to support their economies.”

Jenny W. Hsu contributed to this article.

Write to Saumya Vaishampayan at


Trade with China important to US economy report says — China-US trade war the single biggest economic threat to Australia

January 12, 2017
Trade with China important to US economy, report
© Getty Images

Trade with China is important to the health of the U.S. economy but the communist nation must continue implementing key reforms to improve market access, a new report says.

The U.S.-China Business Council (USCBC) and Oxford Economics released on report on Tuesday shedding more light on the strained yet mostly positive relationship between the world’s two largest economies.

“The overall impact of the commercial relationship with China on the U.S. economy remains positive,” said USCBC president John Frisbie.“Jobs have been lost in some areas, but jobs have been created and supported in other areas,” Frisbie said.

“Policymakers in the United States need to recognize that technology has had a far bigger impact on U.S. manufacturing employment than China, and take appropriate actions to support growth and impacted workers.”

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Frisbie noted that U.S. business have lost confidence in China because of the slow pace of economic change that is needed to open more of the economy to American goods and services.

The USCBC report said that trade with China supports roughly 2.6 million U.S. jobs, across many industries, and created $216 billion in growth in 2015.

“China’s rise has had a significant and positive impact on the U.S.,” said Scott Livermore, managing director of macro and industry services for Oxford Economics, which produced the report.

China purchased 7.3 percent of all U.S. exports — $165 billion in goods and services — from the United States in 2015.  The United States actually has a surplus with China of 0.2 percent of gross domestic product on trade in services, the report said.

Donald Trump waged a vigorous campaign against China in his run for the White House, focusing on the negatives faced by the United States such as job losses.

The president-elect so far has chosen Cabinet and other administration officials who hold anti-China views and have promised to punish Beijing for skirting international trade rules, including manipulating their currency, the yuan.

Separately on Tuesday, Treasury Secretary Jacob Lew warned that the U.S. can’t ignore steps taken by China to buoy the value of its currency after years of devaluing aimed at giving Beijing a global trade advantage.

Lew told the Wall Street Journal that it would be “analytically dangerous” to compare China’s recent actions on the exchange rate with previous efforts to let the yuan drop in value .

And without help from China, the United States may struggled to contain North Korea’s efforts to deploy nuclear weapons.

Trump has promised to label China a currency manipulator as soon as this spring in what could be the first step in slapping tariffs on Chinese products.

Lew also said that China appreciates being treated with respect as the two nations engage in their economic relationship.

“They respect candid and intellectually sound criticism. Where I think they bridle is when they feel that they’re being caricatured or where facts are being ignored,” Lew said.

A new report from the U.S. Trade Representative’s office on Monday said that while substantial growth in U.S. exports is a sign of progress the Chinese government continues to intervene in its economy, creating tensions between the two nations.

“Many of the problems that arise in the U.S.-China trade and investment relationship can be traced to the Chinese government’s interventionist policies and practices and the large role of state-owned enterprises and other national champions in China’s economy, which continue to generate significant trade distortions that inevitably give rise to trade frictions,” the USTR said in its annual report to Congress.

On Tuesday, U.S. Trade Representative Michael Froman, who made his final speech at the Washington International Trade Association, said he is supportive of the next administration taking a tough stance on China.

He highlighted that the Obama administration had filed 14 cases with the World Trade Organization against China and won them all.

Yet he conceded that he is perplexed about why Trump would follow through on his promise to ditch the Trans-Pacific Partnership.

“There simply is no way to reconcile a get-tough-on-China policy with withdrawing from TPP,” Froman said.

“That would be the biggest gift any U.S. President could give China, one with broad and deep consequences, economic and strategic. It would be huge for China.”

Essentially he said that the move would signal an abdication of U.S. leadership in the Asia-Pacific.

“It would be a strategic miscalculation of enormous proportions,” he said.

Money Is Leaving China — China Ready to Boost Banks’ Liquidity to Counter Weaker Yuan

August 23, 2015


China’s central bank is readying another reduction to banks’ reserve-requirement ratio, which could free up over $100 billion for loans.

Photo: People’s Bank of China

By Lingling Wei
The Wall Street Journal

BEIJING—The People’s Bank of China is preparing to flood the country’s banking system with new liquidity to boost lending, according to officials and advisers to the central bank, as a weaker currency could spur more funds leaving Chinese shores.

The step—which involves cutting the deposits banks are required to hold in reserve—would signal that the Chinese central bank’s exchange-rate maneuvering in the past two weeks is backfiring, forcing it to resort to the same easing measures that so far have failed to help spur economic activity.

The move, which the people say could come before the end of this month or early next month, would involve a half-percentage-point reduction in the reserve-requirement ratio, they say, potentially releasing 678 billion yuan ($106.2 billion) in funds for banks to make loans.

It would be the third comprehensive reduction in the reserve requirement this year. Another option being considered at the PBOC is to only target the cut to banks that lend large amounts to small and private businesses—the ones deemed key to China’s future growth—though that strategy hasn’t proven effective in the past in channeling credit to those borrowers.

On Aug. 11, the PBOC engineered a nearly 2% decline in the yuan’s official rate set by the central bank against the dollar, which has resulted in a decline of 4% in the currency’s market rate—the yuan’s steepest slide in two decades. The central bank tied the devaluation to its effort to make the exchange rate more market-driven, as investors have shifted in the past year to now expect the currency to weaken rather than strengthen.

But the devaluation came at a time when a faltering stock market had already severely battered investors’ faith in the government’s ability to manage the economy. And as fears grow of a deepening slowdown, the yuan has kept falling, and the PBOC has resorted to a strategy it has said it would use less: direct intervention to control the yuan’s value.

The latest interference has involved selling dollars and buying yuan to keep the Chinese currency from plummeting. Analysts at Orient Securities Co. 600958 -6.57 % , a Shanghai brokerage, estimate the central bank has spent more than $40 billion of China’s roughly $3.6 trillion foreign exchange on the currency intervention. As the actions have effectively drained yuan funds from the market, the PBOC last week pumped 260 billion short- to medium-term funds into the financial system to offset the liquidity squeeze.

However, that may not be enough as the slowing economy and weaker currency would trigger greater capital outflows. Yuan positions at Chinese banks accumulated from foreign-exchange purchases fell by a record 249.1 billion yuan in July, a sign that more money is leaving China.

“A new round of reserve-requirement reductions is inevitable,” said Zhang Ming, a senior economist at the Chinese Academy of Social Sciences, a government think tank. Mr. Zhang projects as many as four such cuts in the rest of the year.

Still, within the central bank, doubts remain about the effectiveness of such measures, according to the officials and advisers. The latest PBOC data show the government’s efforts to prop up share prices since early July have resulted in a surge in lending to financial institutions, but loans to the real economy have slumped. In addition, a further significant increase in China’s broad money supply of $21 trillion, nearly twice the size of the U.S.’s, could push up inflation and cause asset bubbles.

“The central bank would have preferred not to flood the market again with liquidity, if only it had a choice,” said one of the officials close to the central bank.

The dilemma shows that China’s monetary policy largely remains at the mercy of its still-rigid exchange-rate system. Beijing’s desire to control the yuan’s value, as evidenced by the recent currency intervention, means that unlike the U.S. Federal Reserve and other central banks, the PBOC still lacks the ability to conduct an independent monetary policy. That is because buying or selling the yuan to influence its exchange rate would affect domestic liquidity, causing the central bank to have to adjust its monetary policy as a result.

“We call it Zhou Xiaochuan’s dilemma,” said Wang Jian, an analyst at Orient Securities, referring to the PBOC’s long-serving governor.

For most of the past decade, the PBOC had sold yuan and bought dollars to keep the Chinese currency from rising too fast, which resulted in a massive foreign-exchange reserve and led the central bank to soak up the liquidity by raising the reserve-requirement ratio for banks. Since last year, as market expectations for the yuan’s direction changed to depreciation from appreciation, China has experienced some unnerving capital outflows and the central bank has had to instead cut the reserve-requirement ratio to keep capital from leaving the country as well as to boost market liquidity.

The PBOC has debated whether to devalue the yuan for a long time, according to the officials and advisers. It had resisted the action largely because of its desire to turn the yuan into a global currency, as a weaker yuan could hurt its appeal to international businesses and investors. But in recent weeks, as China’s economy continued to sputter, the central bank found itself having to bow to the depreciation pressure from within the Chinese government.

A new round of reserve-requirement reductions is inevitable.

—Zhang Ming, a senior economist at the Chinese Academy of Social Sciences

In the months before its surprise move on Aug. 11, the central bank had kept the yuan largely unchanged against the dollar, effectively pushing it higher against currencies in other emerging markets and hurting China’s exporters. In fact, until the depreciation action, the yuan had strengthened by 55.7% against the currencies of its trading partners, after adjusting for inflation, since the Chinese currency was allowed to float somewhat in mid-2005. The yuan had appreciated roughly 33% against the U.S. dollar over the same period.

At a news conference on Aug. 13 explaining its devaluation decision, Zhang Xiaohui, an assistant PBOC governor, said that to keep the value of the yuan—also known as renminbi, or People’s currency—more in line with those of its peers, “there’s a certain need to devalue renminbi against the dollar.” PBOC officials also hinted in recent days that the central bank is largely done guiding the yuan lower and will now focus on holding the line at around 6.4 yuan a dollar.

Some within the Chinese government viewed the PBOC’s strategy of combining the yuan depreciation with market reforms as a smart move that could fend off criticism from China’s critics. Others, however, think the central bank’s timing is questionable and that better communication by the central bank could have avoided some of the subsequent volatility and what some call a market overreaction to the yuan-devaluation move.

Press officials at the central bank didn’t respond to requests for comment.

Write to Lingling Wei at