World Economy

Jack Lew: We're going to hold China accountable on currency

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Treasury Secretary Jack Lew, in an exclusive interview with CNBC, diplomatically but firmly criticized China's handling of its currency devaluation. He also said the recent trading turmoil isn't a major concern at this point, but "I keep my eye on the market."

Regarding China, whose devaluation last month helped set off the plunge in world markets, Lew said: "They have to understand, and I make this point to them quite clearly, that there's an economic and a political reality to things like exchange rates." His comments follow those of other officials who have been critical of the way China went about devaluing its currency.

"They need to understand that they signal their intentions by the actions they take and the way they announce them. And they have to be very clear that they're continuing to move in a positive direction. And we're going to hold them accountable," said Lew, who will be participating in a meeting of G-20 financial ministers and central bankers Friday in Turkey.

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"I think that we have been very clear for a very long time with China, how they manage their exchange rate is a matter of great concern to us and that they need to be willing to let market forces drive the value up, not just drive it down," he said in the interview Wednesday. "I think it is something we will discuss at the G-20, is any temptation to slip into what might look like competitive devaluation. It's both unfair and it ultimately leads to a worse global economy."

The treasury secretary's remarks come ahead of the Chinese premier's visit to the U.S. later this month, and with markets swinging wildly on concerns over the Chinese economy. China last month took extraordinary steps to devalue the yuan, a move that experts said was an acknowledgement of what's been known for some time—the world's second largest economy has slowed amid efforts to transform the drivers of growth there.

Lew said more economic reform is the right answer for China. "There needs to be a set of reforms put in place where the economy becomes much more market oriented, where consumer demand grows and there's a shift from a heavy, heavy emphasis on investor spending to more consumer-driven spending," he said.

"What they're experiencing now is the challenge of managing that transition in an orderly way," he continued. "The really important question for the medium and the long term is, 'Do they have the ability to stick to the reform plan that they've mapped out?"

On the campaign trail, Republican presidential contender Donald Trump has said what's going on with China's economic policy is "one of the greatest thefts in history."

In the interview that aired Thursday, Lew told CNBC: "I don't need to look to the political statements to focus on the importance of the U.S.-China economic relationship."

"We expect them to behave in a way that meets a level of transparency where it's credible that they're moving to keep commitments that they've made," he said.

Stock market turmoil

On the issue of the extreme volatility in the stock market, Lew said it's something worth watching but isn't a major concern at this point.

"We are looking at what, if any, risks there are, and so far have not seen the kinds of stresses in financial institutions that would cause us to have any immediate concerns," he said.

"I keep my eye on the market," he added, "but I try to not respond immediately and form judgments based on minute-to-minute or day-to-day market moves."

Since the dramatic lows of last week driven by concerns about China's economy, the Dow Jones industrial average has risen 6.4 percent based on Wednesday's closing gains. The and Nasdaq composite index have gained 4.4 percent and 10.7 percent, respectively, from their lows of last week.

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Asked whether he thinks high-frequency trading causes more risk in the markets and is unfair to individual investors, Lew said he's mindful of the concerns.

"When you see the market open and close with dramatic movements, ... it raises questions as to whether there are things in the architecture of the market, the structure of the markets, that are contributing to some of the moves," he said.

However, he said it's premature to start considering any regulations to limit the role of computers. "I don't think it's a great idea for us to pick and choose what forms of investment and market practices are the way of the future. Governments trying to think that through for markets can get you to a bad place," he said.

US economy 'remains strong'

As for the U.S. economy, Lew called it one of the bright spots in the world, with "continuing signs of strength" but acknowledged the desire to do even better.

"We've [recently] had a consistent and quite stable series of indicators that the U.S. economy remains strong," he told CNBC. "We're seeing good, sustained job growth. And we're seeing increasingly strong consumer demand."

Lew's comments on the economy come as Wall Street wonders whether the Federal Reserve will increase interest rates at its meeting later this month. Before all the turmoil on China concerns, economists were betting heavily that the first rate hike in nine years would come in September. Now there are questions about whether the central bank might wait until December or even next year.

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No sanctions lifted until 'Iran has complied'

As President Barack Obama looks to secure support on Capitol Hill for the Iran nuclear accord, Lew told CNBC: "None of the sanctions that will be lifted once Iran complies are lifted yet. They're all in place until Iran completes all of the steps that it has to take."

To the business community looking to do business in Iran, he said: "I think the challenge that we have is to make that clear so that no firm is out there doing business and saying, "'Well, we didn't know. We thought that because there was a vote, you know, the coast was clear.'"

He acknowledged that some companies may be trying to lead the groundwork for conducting business in Iran, but said: "I have made quite clear to them that any company that does business in the United States is subject to U.S. law. And we are going to be continuing to proceed with the enforcement of sanctions until we get to the point that Iran has complied."