WASHINGTON (AP) – The Bush administration said Thursday that China should ‘move without delay’ to change currency practices that American manufacturers blame for soaring trade deficits and the loss of U.S. jobs.
Facing heavy criticism for the failure to cite China last week as a currency manipulator, Treasury Secretary John Snow told the Senate banking committee that the administration’s nearly two-year effort to pressure China to stop pegging its currency tightly to the U.S. dollar was showing results.
He said the Chinese had now taken all the steps needed to prepare their financial system for the move to a more flexible currency.
“China is now ready and should move without delay in a manner and magnitude that is sufficiently reflective of underlying market conditions,” Snow said in his prepared testimony.
Snow repeated a warning made in last week’s currency report: China could be cited by the United States as a currency manipulator, a process that could lead to economic sanctions, if it does not act soon.
Snow made clear in his testimony that the administration was not insisting that China move immediately to a currency whose value was set totally in global currency markets, a practice known as floating.
“We are not calling for an immediate full float with fully liberalized capital markets. This would be a mistake at this time – China’s banking sector is not prepared,” Snow said. “What we are calling for is an intermediate step that reflects underlying market conditions and allows for a smooth transition – when appropriate – to a full float.”
Snow did not elaborate on what interim steps would be appropriate but outside experts have said China could stop linking its currency only to the U.S. dollar and instead peg it to several currencies or it could allow the yuan to trade in a band rather than keeping it pegged at 8.28 yuan for each dollar.
That would allow the yuan to be revalued higher.