Geithner's report delay will pay dividends

08:25, April 07, 2010      

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Editor's note: The US Treasury on April 3 announced that it will delay publication of its semiannual report on the exchange rate policies of its leading trading partners, originally scheduled for release on April 15. The US government has been under pressure to name China a currency manipulator in that report amid growing tension between China and the United States on trade issues. The US Treasury did not announce when it now intends to publish the report. Stephen Roach, chairman of Morgan Stanley Asia, told China Daily in an e-mailed statement that the move saves bilateral trade relations from being damaged by "China-bashing protectionists". The following are his comments:

"I applaud Secretary Geithner's decision to delay the Treasury's foreign exchange report. This effort was in danger of being co-opted by China-bashing protectionists. When laws are twisted for crass political purposes, a responsible government must challenge them. I think there is a compelling case to suspend, or seriously overhaul, this exercise.

"The main problem with the Treasury report is that it perpetuates America's denial of its own major role in fostering destabilizing global imbalances. The United States doesn't save. The broadest measure of domestic saving - the net national saving rate - has gone negative, falling to a record low of -2.5 percent of national income in 2009.

"But since the US views saving-short growth as an entitlement, it must import surplus saving from abroad. As such, it counts on the world's savers, such as China, to run large current account and trade surpluses to provide that capital.

"Yes, China's saving bias and currency management tactics have led to an outsize build-up of foreign exchange reserves - the "ah ha" for China bashers who want the Treasury to render a manipulation verdict and Congress to impose trade sanctions. But the ice is very thin here.

"The bulk of China's foreign exchange reserves are recycled into dollar-based assets - rather helpful in funding America's massive shortfall of saving. Whom might deficit-prone Washington turn to if it shuts off the Chinese funding spigot?

"Granted, China manages its currency very carefully vis vis a dollar anchor - a strategy that it believes is essential to protect an embryonic financial system and maintain social stability.

"But beginning in July 2005, it revamped its foreign exchange mechanism - moving from a dollar peg to a managed float. While this arrangement was suspended during the crisis, senior Chinese officials have given every indication that the hiatus is about to end.

"This outcome now seems all the more likely in light of the Treasury's delay of the foreign exchange report. And, as a result, the world stands a much better chance of avoiding the slippery slope of trade frictions and protectionism.

"Thank you, Tim Geithner."

Source: China Daily


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