The United States, which has been coping with a record-high trade deficit with China, welcomed the rise in that country’s currency.
“Greater flexibility in China’s exchange rate is something we’ve long advocated,” Treasury Department spokesman Tony Fratto said Monday in response to the appreciation in China’s currency, called the yuan or the renminbi.
China’s official exchange rate broke through the psychologically important 8 yuan per U.S. dollar level Monday, its highest level in more than a decade. Traders were hopeful the move may signal Beijing’s willingness to allow its currency to appreciate faster.
Any evidence of greater exchange-rate flexibility “is something we certainly welcome,” Fratto said.
The Bush administration has been prodding Beijing to let its currency float more freely with market forces. That is of keen importance to the United States, which saw its trade deficit with China swell to a record $202 billion last year — the highest ever registered with a single country.
U.S. manufacturers say China is keeping its currency artificially low, making Chinese goods cheaper in the United States and U.S.-made goods more expensive in China.
American manufacturers say the current system has hurt exports from the U.S. and contributed to the loss of U.S. factory jobs.
Sen. Chuck Schumer, D-N.Y., called Monday’s movement in the yuan “good news but only if it portends further movement. The Chinese government knows that reducing controls on the currency is very important to creating a level playing field in world trade.”
Bowing to pressure, China announced last July that it would stop linking the yuan to the dollar. Although the United States applauded the move at that time, it has repeatedly said China needs to do more to revamp its currency practices.
Last week the Treasury Department in a report to Congress complained that China is moving too slowly to revamp its currency system. However, the administration declined to brand the country a currency manipulator — a decision that irked manufacturers, labor unions and other critics.
If the administration had made a finding that China was manipulating its currency to gain an unfair trade advantage, that would have triggered talks between the two countries. China also might have faced trade sanctions.