The chairman of the US Federal Reserve has accused China of damaging prospects for a global economic recovery through its deliberate intervention in the currency market to hold down the value of the renminbi.
Speaking just hours after the Chinese government sharply criticized a US congressional bill that would punish Beijing for alleged currency manipulation, Ben Bernanke told a congressional committee that an undervalued renminbi was preventing the rebalancing of global demand towards emerging market economies.
“Right now, our concern is that the Chinese currency policy is blocking what might be a more normal recovery process in the global economy,” he said. “It is to some extent hurting the recovery”.
The US Senate voted overwhelmingly on Monday to open debate on a bill, clearly aimed at China, that would impose tariffs on imports from countries with undervalued currencies. On Tuesday, the Chinese government blasted the bill in three statements released simultaneously by the foreign ministry, the central bank and the ministry of commerce, saying the legislation could spark a “trade war”.
“By using the excuse of a so-called ‘currency imbalance’, that bill escalates the exchange rate issue, takes protectionist measures, gravely violates the rules of the World Trade Organization and severely upsets China-US economic and trade relations; China expresses firm opposition to it,” said Ma Zhaoxu, foreign ministry spokesman.
Since the beginning of the year, China has permitted the renminbi to rise by just 3 per cent against the dollar. While complaints about exchange rate misalignments in the US have been muted as the dollar has fallen this year against the currencies of most of its trading partners, the US currency’s recent rally is again threatening the competitiveness of American exports. Mr Bernanke’s comments reflect rising concern about renewed weakness in the US and global economy, though he did not comment on the US currency legislation itself.
On Tuesday, John Boehner, Republican Speaker of the House of Representatives, counseled caution over the bill, saying it went beyond the remit of Congress. “I think it’s pretty dangerous to be moving legislation through the US Congress forcing someone to deal with the value of their currency,” Mr Boehner said.
Mr Boehner’s opposition is likely to set up a tussle with the Senate but trade experts say that the House leadership would probably give way if a bill received overwhelming support.
The White House has so far said it shares Congress’s concerns about competitiveness but has reserved judgment on the legislation itself.
The dispute over currency legislation has overshadowed Monday’s announcement by the White House that it was sending three bilateral trade pacts with South Korea, Panama and Columbia to Congress for a vote after several years of delay.