Geithner: Yuan reforms 'significant', 'promising'

Treasury Secretary Timothy Geithner on Wednesday lauded China's decision to ease its grip on the yuan as part of a series of "very significant" and "very promising" reforms. Speaking in a glowing tone rarely heard in Washington when China is discussed, Geithner lauded a recent decision by Beijing's central bank to allow the yuan to fluctuate against the dollar by 1.0 percent on either side of a trading band. The yuan was previously allowed to move just 0.5 percent either side, which helped keep it closely tied to the movements of the US greenback. "I think the cumulative effect of what China's done on the exchange rate side, on the external side is very significant and very promising," Geithner said at a Brookings Institution event. Beijing's trading partners have long criticized the yuan exchange rate, saying it is kept artificially low to fuel a flow of cheap Chinese exports. That has triggered huge trade deficits in the United States and Europe. And China's currency rate is a hot-button electoral issue in the United States, with some lawmakers and leading Republican presidential candidate Mitt Romney baying for retaliatory sanctions against China. Geithner said that China still needed to do more, but appeared to give calls for sanctions little truck. "They've allowed the yuan to appreciate against the dollar in real terms, so about 14 percent since June of 2010. If you look back relative to 2005, it's more like 45 percent. Pretty significant adjustment in real terms." Geithner also cited Chinese capital market reforms -- which could help balance trade -- and less intervention in currency markets as positive signs. "They are on the right path," he said. "They are planning to still move further. I think they recognize they have to go further." Although Washington has harangued China over its forex policies, President Barack Obama's administration has preferred to avoid a full-out trade war over the issue. Before the Chinese central bank announcement, Geithner's Treasury Department delayed a report on China's currency policy until after a series of meetings between the two countries. The Treasury said it was delaying the semi-annual report to Congress, until after meetings of the Group of 20, the International Monetary Fund and a bilateral strategic dialogue. The report has the potential to declare China a currency manipulator, paving the way for retaliatory sanctions. In recent delayed reports Washington has shied away from such a step, which would stoke tensions considerably. China meanwhile has said it will take steps to slowly rebalance its economy. Since Beijing's announcement on Saturday the yuan has strengthened against the dollar by around one tenth of a percent.