This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

China Is Not Manipulating the Yuan, Says U.S. Treasury

NEW YORK (TheStreet) -- The contentious issue of Chinese manipulation of their currency is a hot topic among U.S. politicians. It's the case now, as it was when Mitt Romney and Barack Obama sparred over economic policy in debates in 2012. Politicians, economists and policy makers continue the debate.

But the latest U.S. Treasury Department report exculpated China of currency manipulation practices. However, the report indicated that the renminbi, China's currency, had appreciated at "an unusually slow rate" against other major currencies. (The renminbi is the currency as a whole, and the yuan is the equivalent of one unit, like a dollar is one American unit of money.)

During the course of 2013, it was clear that the renminbi had appreciated on a trade-weighted basis, but much slower than it should have. Chinese Current Account Surplus Drops Precipitously

The yuan gained 2.9% against the U.S. dollar last year, and the current account surplus in China dropped to 2.1% of GDP for 2013. This marks yet a further reduction in the percentage value of the current account surplus to the GDP. In 2012, the current account surplus in China was 2.3% of the GDP. In 2007, it was 10% of the GDP. It has been reported that Chinese foreign exchange reserves increased by $166 billion -- most of it coming in the form of U.S. government securities.

Note that all foreign currency earned in China must be exchanged at the People's Bank of China, which then delivers all the foreign currency to the central government. The State Administration for Foreign Exchange, or  SAFE, then uses the exchanged foreign currency to buy foreign currencies, U.S. Treasury notes and foreign stocks.

While there is a clear government policy about what happens with foreign currency, it is less clear how this amounts to currency manipulation. The way relative currency values are determined is by supply and demand. Since no other entity in China has more leverage or clout than the People's Bank of China, it is safe to say that the bank's actions in the currency markets can have a direct and dramatic effect on the relative strength or weakness of the renminbi. Profiting Off Currency Fluctuations

Traders across the U.K. have long since been spread-betting on the British pound/Chinese yuan currency pair. There are myriad opportunities for short-term profit-taking on this and other currency pairs.

This type of trading activity is tax-free in the U.K. and is viewed as a viable investment alternative -- for both rising and falling markets. The prediction is made per point of movement in the currency market.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,814.94 -2.96 -0.02%
S&P 500 2,067.03 -2.38 -0.12%
NASDAQ 4,758.2520 +3.36 0.07%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs