Biden Administration's First Exchange Rate Report Expected on 15th... China Unlikely to Be Designated as Currency Manipulator

[Asia Economy Reporter Byunghee Park] Bloomberg News reported on the 12th (local time), citing sources, that China is not expected to be included in the list of currency manipulators in the first semi-annual currency report of the Joe Biden administration. Instead, there is a possibility that the United States will designate Taiwan as a currency manipulator.

The U.S. Treasury Department is expected to release the so-called currency report, officially titled the "Macroeconomic and Foreign Exchange Policies of Major Trading Partners," on the 15th. The currency report is usually published twice a year, in April and October.

China was designated as a currency manipulator during the previous Donald Trump administration. This was the first time in 25 years since 1994, and it sparked controversy that President Donald Trump, who had sharp trade conflicts with China, politically used the Treasury Department.

◆ Yellen focuses on restoring international trust = In August 2019, the U.S. Treasury Department suddenly announced the currency report and designated China as a currency manipulator. This came right after China set the dollar-yuan exchange rate at around 7 yuan per dollar. When China allowed the yuan to weaken, the Trump administration immediately responded by designating China as a currency manipulator, triggering a currency war. The Trump administration removed China from the currency manipulator list five months after concluding a trade deal with China in January last year.

On the other hand, Treasury Secretary Janet Yellen is expected to focus on restoring international trust in the currency report, moving away from political controversies.

At her confirmation hearing in January, Secretary Yellen emphasized that while the U.S. must firmly oppose attempts by other countries to manipulate their currencies, caution should be exercised in designating currency manipulators. She stated that trade deficits alone cannot capture everything at once and that strict criteria should be applied when designating currency manipulators.

Eswar Prasad, a Cornell University professor who was in charge of China at the International Monetary Fund (IMF), said, "The designation of currency manipulators during the Trump administration was somewhat impulsive," adding, "The Treasury Department needs to restore international trust in the currency report by designating currency manipulators in a more cautious and consistent manner rather than targeting specific countries."

◆ Significant reduction in currency manipulator and monitoring countries expected = Accordingly, there are forecasts that the number of currency manipulators and monitoring countries will be reduced by about half in this report. In the last currency report of the Trump administration in December last year, Switzerland and Vietnam were designated as currency manipulators. In addition, 10 countries including South Korea and China were included as monitoring countries. Among the 10 monitoring countries at that time, 8 were Asian countries, raising criticism that the list targeted countries close to China.

The U.S. criteria for designating currency manipulators are ▲ a trade surplus with the U.S. exceeding $20 billion ▲ a current account surplus exceeding 2% of GDP ▲ persistent and unilateral foreign exchange market intervention (net dollar purchases exceeding 2% of GDP for more than six months). Countries meeting all these criteria are designated as currency manipulators, and those meeting two criteria are classified as currency monitoring countries.

Based on these criteria, there is a possibility that Taiwan will be designated as a currency manipulator in this currency report. Major foreign media reported on the day that "despite strengthening relations between the two countries, the likelihood of the U.S. designating Taiwan as a currency manipulator is increasing." Yang Chin-long, Governor of the Central Bank of Taiwan, is also reported to have responded that "there is a possibility" regarding this matter.