China’s Currency to Keep Appreciating

Obama Says U.S. Expects China’s Currency to Keep Appreciating

By Hans Nichols and Julianna Goldman

June 27 (Bloomberg) -- President Barack Obama said the U.S. expects China’s currency to appreciate as the Chinese government allows more flexibility and market forces take a bigger role in setting the value.

China’s decision to lift a two-year-old policy of pegging the yuan to the U.S. dollar and allow its currency to trade more freely was a first step and the U.S. will monitor progress over the next “several months,” he said.

“We do expect that as more and more market forces come to bear, that given the enormous surpluses that China has accumulated, that the renminbi is going to go up and it’s going to go up significantly,” Obama said in Toronto at a press conference following a weekend summit of the Group of 20.

Obama met yesterday with Chinese President Hu Jintao for talks that included currency and trade. Obama is under pressure from some lawmakers in the U.S. Congress, who are pressing for actions, including letting U.S. companies seek tariffs on Chinese imports.

China’s undervalued currency has given it a “significant” trade advantage, Obama said.

The U.S. trade deficit with China reached $71 billion for the first four months of the year, up 5.7 percent from the same period of 2009, according to U.S. government data.

‘First Step’

Obama said it’s in China’s interest to move forward with its plan, which the U.S. views as a “very positive” development. Still, Obama said the move was a “first step” and that Treasury Secretary Timothy Geithner will make a determination on what’s enough over coming months.

“We didn’t expect a 20 percent revaluation in a week,” Obama said. “That would be disruptive to the Chinese economy, it would be disruptive to the world economy.”

Ma Xin, a director general at the National Development and Reform Commission, China’s top planning agency, said in Toronto today that economic fundamentals, not foreign pressure, should determine exchange rates.

China ruled out a one-time revaluation of the currency that’s been held at about 6.83 yuan per dollar since mid-2008. China’s move to allow more flexibility in the currency triggered the biggest rise in the yuan in half a decade.

The yuan gained 0.5 percent last week, the most since December 2008. The yuan’s 12-month non-deliverable forwards declined 0.2 percent to 6.6717, 2 percent stronger than the spot rate of 6.8063, the smallest premium this week.