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U.S. Treasury Expected To Report Today On China's Currency Practices

An employee counts U.S. dollars next to Renminbi yuan banknotes at a bank in Anhui Province in September.
Officials in Beijing have warned Washington ahead of a speech by U.S. Federal Reserve Chairman Ben Bernanke not to blame China for the weakening of the dollar on global markets.

The U.S. Treasury is due later today to issue its semiannual assessment of the currency policies of U.S. trading partners. Many U.S. lawmakers want China to be declared a "currency manipulator" -- a step toward punishing China for currency policies that U.S. lawmakers say are giving China unfair trading advantages by making the price of Chinese goods cheaper on international markets.

Data released in the United States on October 14 showed the U.S. trade deficit with China swelling to a record high of $28 billion during August -- the latest statistic bolstering the argument that China keeps its currency, the yuan, artificially cheap in order to help its exporters.

But speaking hours before that the U.S. Treasury's assessment, China's Commerce Ministry spokesman Yao Jian said it would not be fair for Washington to criticize Beijing's exchange-rate policy by simply pointing to China's trade surplus.

Yao said that "other countries have no right to comment on what is a reasonable level for a country's trade surplus."

One Eye On History

The value of the U.S. dollar tumbled on October 14 to a 15-year low against the Japanese yen and an eight-month low against the euro. The dollar index -- which tracks the dollar against a number of other currencies -- also reached its lowest level this year.

Financial traders will be listening closely to Bernanke's speech for clues about the scope of the U.S. central bank's expected "quantitative easing" -- a monetary policy in which more dollars would be printed so that the Federal Reserve could buy up more longer-term U.S. Treasury bonds to prop up the economy.

Financial analysts say one potential risk is that quantitative easing could further weaken the value of the dollar on global markets and provide impetus for global competitive currency devaluations, with countries trying to safeguard their exports.

Such competitive devaluations as well as tariff battles were a hallmark of the 1930s, damaging international trade and helping to deepen the Great Depression.

Japanese Finance Minister Yoshihiko Noda says countries must work together to strengthen the global currency markets.

On October 14, Noda told the Japanese parliament that a Group of Seven meeting last week resolved that China and other emerging economies with large trade surpluses should have more flexible currencies.

Making Plans

Noda said he hopes to deepen the debate on how to cooperate on currencies during future international meetings like the Group of 20 gathering in Seoul in November.

"We confirmed in Toronto that emerging markets with trade surpluses including China should pursue a path of flexibility in their currencies," Noda said. "That has even been reconfirmed and we will continue to do so at each upcoming G7 or G20 meeting and discuss further deepening of international foreign exchange coordination."

Russian Finance Minister Aleksei Kudrin, meanwhile, has told a meeting of European Union officials that the United States is largely responsible for instability on the global currency markets.

Kudrin said one reason for the turmoil is "the stimulating monetary policy of some developed countries, above all the United States, which are trying to solve their structural problems in this way."

The currency dispute is expected to be on the agenda of a summit on October 18 between French President Nicolas Sarkozy, German Chancellor Angela Merkel, and Russian President Dmitry Medvedev.

In particular, the three leaders are expected to discuss their positions ahead of November's G20 meeting in Seoul.

based on agency reports