Everybody knows China manipulates currency... except the U.S. Treasury.  They didn't get the memo.  Treasury must issue reports each year identifying currency manipulation, and, by golly, has never found it. No matter how hard they look.

Odd language though, because it looks like they found currency rates set by the Chinese government:

In the report, the Treasury Department said, “China needs to intensify its efforts to rebalance its economy” by bolstering domestic demand to reduce reliance on imports and by changing its financial system to let the yuan’s foreign exchange value be set by the markets rather than by the government. 

Maybe someone can tell me the distinction between "foreign exchange value... set by the ... government" and currency manipulation.  I'm not smart enough to get it.  Looks like cheating to me.

This came in an email to me today on the topic

For the next to last time, the Bush Treasury has declined to cite China, or any other mercantilist country, as a currency manipulator.  According to press reports, Its latest report was sent to Congress yesterday.

Three observations:

*  Like NAM and other apologists for the status quo, Treasury derives a figure of 18.4 percent for the nominal appreciation to date.  That is accurate but misleading, especially when compared to the usual 40 percent revaluation goal. They do so by measuring the change in US cents for the value of one renminbi; in those terms the renminbi would have to rise by well over 50 percent to reach the same level as our 40 percent target for RMB per dollar.  When calculated in terms of the change in the number of RMB per dollar, the figure for the nominal appreciation to date is lower -- about 15 percent from the pre-July 2005 level.  When corrected for inflation (something we hope the CCC will be able to do soon), the effective change is even smaller.  By inlfating the progress, Treasury simply calls more attention to the failure of its diplomatic efforts.

*  Treasury looked at an earlier period and thus did not have to deal with the recent "stalling" in the rate of appreciation, as reported in the Financial Times of May 12.  This morning the RMB trraded at 6.99100 to the dollar; a month ago on April 15 the rate was 6.99250.  No matter how you slice that, the appreciation process has in fact stalled.

*  All this goes to show that Treasury has neither the will nor the means to persuade China (or any other mercantilist) to live up to IMF Article 4 obligations.

If this were just a game, we might say that Ways and Means punted in its March letter when it was only second down and five to go.  Now Treasury on the first play from scrimmage has quick kicked.  The ball lies on the ground downfield.  Will anyone pick it up and run?

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