A group of US lawmakers have reintroduced legislation to punish China for holding down its currency, a bill likely to encounter stiff resistance in the House of Representatives.
Thursday’s move came as the US Treasury’s senior international official said that Beijing had showed promising but so far insufficient progress in allowing the renminbi to rise.
The issue of currencies and current account imbalances is likely to dominate next week’s meeting of Group of 20 finance ministers and central bank governors in Paris, the first big meeting held under France’s 2011 presidency of the grouping.
Nicolas Sarkozy, French president, initially said that reform of the international monetary system would be a priority for the G20 this year, though he has subsequently backed off and admitted that the US dollar would remain the dominant global reserve currency for a while to come.
Also on Thursday, the International Monetary Fund released a policy paper laying out options to expand the use of special drawing rights (SDR) a reserve asset used by governments and the IMF. The paper said that there were some advantages to wider use of SDRs, which currently play a small role in the global monetary system, but that “very significant practical, political, and legal hurdles would need to be overcome in the process.”
On Capitol Hill, Sander Levin, the senior Democrat on the House ways and means committee, and Sherrod Brown, a Democratic senator from Ohio, reintroduced legislation designed to let the US impose emergency tariffs against China if its currency is found to be undervalued. The legislation has been considerably toned down from previous versions, which would have imposed an across-the-board tariff, but some lawyers still question its legality under World Trade Organisation rules.
Although the bill has some Republican support, its chances of passing have diminished sharply since the Republicans took over the House of Representatives last month. Dave Camp, the new chairman of the ways and means committee, has said that currency legislation was not a priority for him or the Republican House leadership.
Lael Brainard, the US Treasury’s senior official on international affairs, said on Thursday that while the administration shared Congress’s goal of pushing for a faster rise in the renminbi, it had “different means and mechanisms than Congress” in trying to achieve them.
Mr Sarkozy and other policymakers, including senior Chinese officials, have called for the SDR – made up of a basket of the dollar, the euro, the yen and the pound sterling – to be more widely used in international trade, foreign exchange reserves and the pricing of commodities such as oil.
Mr Sarkozy has suggested including the renminbi in the basket that makes up the SDR, but IMF officials say that currencies in the basket need to be freely and widely traded to enhance liquidity in the unit. Ms Brainard said that the renminbi might one day be included, providing that Beijing had proceeded further with liberalising the use of the currency and flows of capital in and out of the country.
A summary of debate between countries on the IMF’s executive board, released on Thursday along with the SDR paper, showed that governments were still divided about how far new reserve currencies were likely to be used.