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Busch: There is no Currency War! ... (Take Cover)

In a widely reported Bloomberg interview, US Treasury Secretary Tim Geithner said on Tuesday he sees "no risk" of a global currency war and wants to maximize incentives for China to allow its Yuan to rise in value. Reuters reports that he told the Charlie Rose Show in an interview that China would work against its basic development objectives if it kept its currency undervalued.

“I’m very confident over time that this is going to happen," he said of Chinese currency appreciation. "We just want to make sure it's happening at a gradual but still significant rate."

Unfortunately for Sec. Geithner, Congress and Japan are not likely to share that view.

Today, the Chinese announced a massive increase in their US dollar foreign currency reserves. The reserves increased $194 billion in September and now stand at $2.65 trillion according to the People's Bank of China. Also, China reported their September exports were the 2nd highest on record at $145 billion with a total trade surplus of $16.9 billion.

Yuan
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Yuan

On a fact finding trip to China, US Senator and chairman of the Senate Finance committee Max Baucus stated, "A lot of people feel an undervalued renminbi costs jobs," and added that the legislation to address China’s currency policy could pass the Senate.

Remember, a bill on China currency manipulation tariffs has already passed the US House of Representatives.

China isn't the only currency skirmish currently happening. Japan's PM Kan stated that excessive foreign exchange moves can't be overlooked and that China and Korea must show responsible foreign exchange policies.

Japanese Finance Minister Yoshihiko Noda told a parliamentary panel when asked about South Korea's currency intervention and its place in G20, "As chair of the G20, South Korea's role will be seriously questioned."

"Should the US Treasury not find China a manipulator, the heat will not only be on Treasury Secretary Geithner, but also President Obama. At a time when many in his party are breaking with him, this could lead to a surge of those abandoning ship."

Tomorrow, the US will release its August trade deficit which is expected to be $44.0 billion. On Friday, the US Treasury is set to release a report on whether China or any other country is a currency manipulator. Today, ECB governing council member and head of the German central bank Axel Weber stated how he feels about the subject: "China has a current account surplus because its authorities manipulate their currency."

Should the US Treasury not find China a manipulator, the heat will not only be on Treasury Secretary Geithner, but also President Obama. At a time when many in his party are breaking with him, this could lead to a surge of those abandoning ship.

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    Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.