US won’t press China over exchange rate

The Bush administration has said that although it was ‘‘extremely dissatisfied’’ with China’s refusal to allow its currency to fluctuate more freely...

The Bush administration has said that although it was ‘‘extremely dissatisfied’’ with China’s refusal to allow its currency to fluctuate more freely, it would not cite China as a currency manipulator and provoke a confrontation over the issue.

The administration’s announcement, made by Treasury Secretary John W. Snow said that despite dissatisfaction with the Chinese record on the issue, the administration had little latitude because China had made at least a small amount of progress on letting its currency, the yuan, float in open markets in the last year.

He said the law required that China be found to have the intention of manipulating its currency to encourage exports and protect the value of its dollar assets. But he added that the record showed that China was trying to cooperate with the US and had allowed the value of its currency to appreciate.

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Critics of China’s currency policy say that by holding down the yuan’s value, China is deliberately pursuing a policy that makes its exports more competitive on global markets and contributes to its huge trade imbalance with the US.

However, Nobel laureate Robert Mundell on Thursday said that appreciation of the Chinese currency would threaten the country’s stunning economic growth and could wreak havoc on the region.

Mundell says such admonitions are not in China’s interest and would bring about huge problems such as threatening its already wobbly banking system beset by bad loans, cause deflation, increase unemployment, reduce net foreign investment and cut economic growth.