US softens stance on China's currency

Washington: The United States has softened its long-held stance that China's currency is significantly undervalued, saying the yuan remains below its "appropriate medium-term valuation".

In its semi-annual report to Congress on "International Economic and Exchange Rate Policies", the US Treasury Department said the near-term trajectory of the RMB is difficult to assess given the economic uncertainties. "However, our judgement is that the RMB remains below its appropriate medium-term valuation," it said.

The department said it is monitoring how Beijing implements its new exchange-rate policy since the August 11 devaluation.

"The Department of Treasury is carefully monitoring the implementation of the new exchange rate policy approach and how it will work in practice?specifically, whether China will allow the RMB to respond to market forces for appreciation as well as for depreciation," the report said.

To continue to grow in the future, China needs to meaningfully shift its domestic economy away from reliance on investment and towards greater reliance on household consumption, the department said.

"A variety of policies will be necessary to bring this rebalancing about and the government has scope, alongside other measures, to provide additional fiscal support for household consumption.

"But currency appreciation is also key to this process and will support the purchasing power of Chinese consumers and helps shift production towards non-traded goods and services," it said.

"Given economic uncertainties, volatile capital flows, and prospects for slower growth in China, the near-term trajectory of the RMB is difficult to assess. However, our judgement is that the RMB remains below its appropriate medium-term valuation," the Treasury said.