"China's decision to abandon its currency peg ....the result of careful diplomacy ...."

Clio the Leo

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Sun Jun-20-10 08:05 PM
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"China's decision to abandon its currency peg ....the result of careful diplomacy ...."

Edited on Sun Jun-20-10 08:11 PM by Clio the Leo

Apparently, some background research is in order....

Chinese Government, Amid Domestic and International Pressure, Aimed for Maximum Diplomatic Reward

By AARON BACK And ANDREW BROWNE

BEIJING�China's decision to abandon its currency peg is a victory of pragmatism over divisive politics, the result of careful diplomacy by leaders in Beijing and in Washington, each side vulnerable to powerful domestic lobbies.

In the end, both sides agreed that a more flexible exchange rate was good for China, good for the U.S. and good for the global economy. Yet timing was everything.

China could not be seen caving to U.S. pressure. Nor did it want to reward speculators, who had been placing big bets on an appreciation of the yuan.

Beijing also wanted to extract the maximum diplomatic reward from its move while giving as little ground as possible.

The Chinese government has transformed the atmosphere just days ahead of a meeting of the Group of 20 leading industrial economies in Canada with an announcement that�at most�will result in a crawling upward adjustment in the value of the yuan. China has explicitly ruled out a big one-off appreciation.

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As the debate over the currency heated up, China's powerful aversion to foreign pressure was on full display. Chinese President Hu Jintao offered the outlines of a deal on an April trip to the U.S., when he told U.S. President Barack Obama in a one-on-one meeting that China remains committed to reform of the currency, but that Beijing "won't push forward the reform under external pressure."

Obama administration officials understood that overt pressure on China would be counterproductive. A more mild U.S. approach was most clearly signaled when U.S. Treasury Secretary Timothy Geithner announced on April 3 that the Treasury would delay a report to Congress due April 15 on whether China manipulates its currency. A series of coming high-level meetings between the U.S. and China would be "the best avenue for advancing U.S. interests at this time," Mr. Geithner said.

Just days later, the Treasury secretary made a dramatic surprise visit to Beijing, meeting in an airport lounge with Vice Premier Wang Qishan, who oversees many aspects of financial and economic policy. Public statements from each side made no mention of the currency issue, but a U.S. official said the yuan was discussed. China didn't give an explicit commitment on the issue, but that had been expected, given China's concern about being perceived as yielding to foreign demands.

In most public statements on the yuan during this period, Mr. Geithner was careful to stress that it was "China's choice" whether to shift policy, and that a more flexible exchange rate was in China's own economic interests.

At the same time as Obama administration officials were toning down the U.S. rhetoric on the currency, they had to contend with a far less patient U.S. Congress, and massive public dissatisfaction with persistently high unemployment.

Appearing before the Senate Finance Committee last week, Mr. Geithner used more pointed language. "The distortions caused by China's exchange rate spread far beyond China's borders and are an impediment to the global rebalancing we need."

http://online.wsj.com/article/SB10001424052748704638504575318671733450594.html?mod=WSJ_hpp_LEFTTopStories

President Barack Obama talks on the phone with Chinese President Hu Jintao in the Oval Office on May 6, 2009.

President Barack Obama meets with Chinese President Hu Jintao at the G-20 Summit in Pittsburgh, Pa., Sept. 25, 2009. (Official White House Photo by Pete Souza)

President Barack Obama walks with Chinese President Hu Jintao at Diaoyutai State Guest House in Beijing, China, Nov. 16, 2009. (Official White House Photo by Pete Souza)