The word from the Hill

The U.S. Treasury stopped shy of naming China as a currency manipulator (as many had expected it would) in its early May semi-annual report on global currencies. Instead, in the report Treasury Secretary John Snow stated it is “a matter of extreme urgency” that Chinese authorities allow the yuan to rise faster vs. the U.S. dollar.

“The Treasury tried to walk a fine line, with the intention of diffusing protectionist sentiment in Congress,” says Jim Glassman, senior economist at JP Morgan Chase.

Prior to the report’s release, there was talk in the market about China not doing enough, and many economists thought the Treasury was going to come down hard on China. However, Buskas views the Treasury’s actions with a unique perspective.

“[The Treasury] used reverse psychology by not naming China,” she says. “It might give China time to revalue because they are not being pressured. They save face in international markets.

“While U.S. officials might see the slow pace of appreciation as foot dragging, the Chinese still have a lot of work to do on their financial markets.”

Glassman notes, “Frankly, what China does with its currency is not our call. It takes decades to transform a financial system, and Western expectations are a little unrealistic.”