Treasury secretary Timothy Geithner said the 'distortions caused by China's exchange rate spread far beyond China's borders and are an impediment to the global rebalancing we need'.
Amid mounting pressure from the US Congress to impose sanctions on China, treasury secretary Timothy Geithner said today Beijing's opposition to revalue its currency is impeding global economic reforms.
Geithner said the "distortions caused by China's exchange rate spread far beyond China's borders and are an impediment to the global rebalancing we need".
"A more flexible RMB will allow market forces to play a more active role over time in facilitating strong, balanced and sustainable growth globally," he told American lawmakers.
He said the reform of China's exchange rate is "critically important" to the US and to the global economy as well as China's own interest.
"Reform of China's exchange rate is critically important to the United States and to the global economy. And it is in China's own interest to allow the exchange rate to reflect market forces," Geithner said during a Congressional hearing on US-China economic relations.
The treasury secretary said president Hu Jintao stated in public this month that China is committed to the reform of the exchange rate. The Chinese leader stated that reform is a key part of his country's "strategy to produce more balanced growth, growth that relies more on domestic demand".
Geithner argued that a stronger renminbi (RMB) would benefit China because it would boost the purchasing power of households and encourage firms to shift to production for
domestic demand, rather than for export.
"A more market-determined exchange rate also means that China will be able to pursue a more effective, independent monetary policy, which is particularly important now, with China's economy facing a risk of inflation in goods and in asset prices," he underlined.
Amid growing sentiments in the US Congress to impose some kind of sanctions on China, American lawmakers from both sides of the political aisle are planning to launch legislative action in two weeks to punish Beijing for keeping the yuan undervalued against the US dollar to gain a trade advantage.
Two top senators, meanwhile, today demanded an investigation into China's currency manipulation and its effect on the US paper industry.
In a letter to the US commerce secretary, Gary Locke, Senators Sherrod Brown and Charles Schumer demanded that the Commerce Department move forward with an investigation of China's currency manipulation and its effect on the US paper industry.
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