It's Official: No "Currency Manipulation" Judgment for Now

For some reason the notice is not yet published at the Treasury Department's Press Room site -- presumably it will be up there soon This afternoon Timothy Geithner announced that he would delay a report, normally due on April 15, about the trade and currency-exchange policies of other major world economies. This report has been a diplomatic ticking time-bomb, in that Geithner would have to announce whether China's refusal to let its RMB rise against the US dollar amounted to "currency manipulation." This is a judgment that would have triggered other political and legal actions by the U.S. government, and that he would have been delivering two days after Hu Jintao had come to Washington to discuss cooperation with the U.S. on efforts against nuclear proliferation. Just as a matter of protocol, the obvious and apt comparison would have been to Prime Minister Netanyahu's recent gracious welcome of VP Biden to Israel.

As mentioned earlier today and in the preceding five or six posts (complete links when we have "categories" again), I think that, completely apart from the timing, applying the "manipulation" label would have been pointless, self-indulgent, short-sighted, and actively harmful. Geithner's finessing of the whole issue seems like a nice way out of the predicament -- which clearly must have been worked out with the Chinese government as part of the deal for Hu's visit.

Geithner's official statement, quoted after the jump (from numerous news versions available), puts it in the right big-picture perspective: the world's economies have to get into better balance, and currency values are a big part of this. But let's work it out in a non-moralistic way.

This is a much better result than it could have been. Geithner's statement is below.

I have decided to delay publication of the report to Congress on the international economic and exchange rate policies of our major trading partners due on April 15. There are a series of very important high-level meetings over the next three months that will be critical to bringing about policies that will help create a stronger, more sustainable, and more balanced global economy. Those meetings include a G-20 Finance Ministers and Central Bank Governors meeting in Washington later this month, the Strategic and Economic Dialogue (S&ED) with China in May, and the G-20 Finance Ministers and Leaders meetings in June. I believe these meetings are the best avenue for advancing U.S. interests at this time.

As part of the overall effort to rebalance global demand and sustain growth at a high level, policy adjustments are needed that measurably strengthen domestic demand in some countries and boost saving in others. These are also important to ensure robust job growth. In the United States, private savings has increased, the current account deficit has fallen, and the President has outlined a series of measures to reduce our fiscal deficit.

Countries with large external surpluses and floating exchange rates, such as Germany and Japan, face the challenge of encouraging more robust growth of domestic demand. Surplus economies with inflexible exchange rates should contribute to high and sustained global growth and rebalancing by combining policy efforts to strengthen domestic demand with greater exchange rate flexibility.

This is especially true in China. China's strong fiscal and monetary response to the crisis enabled it to achieve economic growth of nearly 9 percent in 2009, contributing to global recovery. Now, however, China's continued maintenance of a currency peg has required increasingly large volumes of currency intervention. Additionally, China's inflexible exchange rate has made it difficult for other emerging market economies to let their currencies appreciate. A move by China to a more market-oriented exchange rate will make an essential contribution to global rebalancing.

Our objective is to use the opportunity presented by the G-20 and S&ED meetings with China to make material progress in the coming months.