WASHINGTON • US Treasury Secretary Janet Yellen will decline to name China a currency manipulator in her first semi-annual foreign exchange report, according to sources, a move that allows the United States to sidestep a fresh clash with Beijing.
The report, which is not yet finalised, is due tomorrow, although it is unclear when the Treasury Department will release it.
During the Trump era, the department was accused of politicising the report after it abruptly designated China a manipulator in mid-2019 outside its usual release schedule, only to lift the label five months later to win concessions in a trade deal.
A Treasury spokesman declined to comment.
The offshore renminbi extended its intraday gain slightly following the news, strengthening around 0.2 per cent to touch a new high for the day of 6.5462 per US dollar.
Dr Yellen's team has also discussed the possibility of reversing a 2019 Trump administration move to lower thresholds for determining whether an economy is manipulating its currency for competitive advantage, the sources said.
A rollback could lead to the agency cutting the number of nations it scrutinises by nearly half, they said.
The Biden administration is looking to hold China accountable for what it says are unfair trade practices, along with other issues such as human rights violations, while reviewing what to do with tariffs slapped on billions of dollars of Chinese goods by former president Donald Trump.
Designation as a currency manipulator comes with no immediate penalties but can rattle financial markets.
The law requires the administration to engage with the countries to address the perceived exchange-rate imbalance.
Penalties, including exclusion from US government contracts, could be applied after a year unless the label is removed.
While China is set to escape a manipulation tag in the upcoming report, Treasury officials are concerned that the nation is masking currency intervention through activities at state-owned banks, according to the sources.
During her confirmation hearing in January, Dr Yellen told lawmakers that the US should oppose attempts by other nations to game their currencies.
She also hinted at changing the criteria of the currency report, saying that bilateral trade deficits should not be seen as "a single catch-all metric".
In the last report during the Trump administration, then Treasury Secretary Steven Mnuchin labelled Switzerland a currency manipulator and placed India on its watch list for closer scrutiny.
Since then, officials in those nations have largely ignored the US and are continuing aggressive moves, an indication that the report is no longer effective as it once was.
Under the Trump administration, there was an "ad hoc" interpretation of the manipulation criteria, according to Dr Eswar Prasad, a Cornell University economist and former head of the International Monetary Fund's China division.
In 2017, Mr Mnuchin placed China on its so-called watch list of countries receiving heightened scrutiny for triggering one out of three of the criteria, rather than the two that is the standard laid out in the currency report.
Dr Prasad said that the Treasury now needs to "rebuild credibility for the report by using a more sensible set of criteria and applying them in a consistent manner across countries rather than change the process to specifically target a certain country".
The report has had special resonance in Asia, home to eight of the 10 members of the December report's monitoring list, in addition to Vietnam's manipulator tag.
There is the potential that the Biden White House will keep up the pressure not just on China but also on some of its traditional allies or friends in the region, including through assessments of domestic currency policies.
BLOOMBERG
