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Jan. 13, 2020, 5:01 p.m. EST

China no longer a currency manipulator, U.S. Treasury says

U.S. says Phase One deal includes China commitment to refrain from competitive devaluation

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By Greg Robb, MarketWatch


AFP/Getty Images Enlarge Image
Top negotiators from China and the United States prepare for group photo during trade talks last year. China's Vice Premier Liu He (2nd R) gestures next to U.S.Treasury Secretary Steven Mnuchin and Yi Gang (R), governor of the People's Bank of China (PBC), as US Trade Representative Robert Lighthizer (L) looks on.

In another sign of thawing relations, the U.S. Treasury on Monday formally stepped back from its decision last year to label China a currency manipulator.

“Treasury has determined that China should no longer be designated as a currency manipulator at this time,” the department said in its semi-annual report on currency intervention.

Treasury said that the Phase One trade deal to be signed this week contains enforceable commitments by China to refrain from currency devaluation and not target its exchange rate for competitive purposes.

China has also agreed to publish relevant information related to exchange rates and external balances.

The report said Treasury had previously designated China a currency manipulator after the country “took concrete steps” over the summer to devalue the renminbi. After depreciation as far as 7.18 RMB per U.S. dollar in early September, the RMB subsequently appreciated in October and is now trading about 6.93 RMB per dollar, the report said.

The first indication of Treasury’s reversal on China came earlier Monday in a report by the Fox Business Network. This led to an extension of the recent rally in the Chinese yuan. In onshore trade /zigman2/quotes/210561991/realtime/sampled USDCNY 0.0000% /zigman2/quotes/210561991/realtime/sampled USDCNY 0.0000% the yuan traded at less than 6.9 dollar for the first time since late August.

The Treasury report concludes that 10 countries require close attention for their exchange rate policies but said no major U.S. trading partner meets the criteria set out in two laws covering forex manipulation passed in 1988 or 2015.

The countries that warrant examination are China, Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, Switzerland and Vietnam.

The agency noted that there has been less forex intervention in part because the dollar /zigman2/quotes/210598269/delayed DXY -0.23%   has generally been strong relative to historical averages so countries have not had to grapple with appreciating currencies.

Despite President Donald Trump’s efforts to lower the U.S. trade deficit, the gap in non-oil goods has risen historic highs above 4% of GDP, the report noted.

Meanwhile, Treasury called on Germany, the Netherlands and South Korea to use some of their fiscal space to enact substantial pro-growth stimulus.

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Greg Robb is a senior reporter for MarketWatch in Washington. Follow him on Twitter @grobb2000.

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