Treasury Secretary Timothy Geithner, while visiting India, has said that a change to China’s yuan-dollar peg is ‘China’s choice‘.
“As I said before and I’ll say it again, but I want to make sure I am repeating myself, I am confident that China will decide it’s in their interest to resume the move to a more flexible exchange rate that they began some years ago and suspended in the midst of the crisis,” he explained.
This is a far more productive approach to the issue than trying to bully China into adjusting the yuan.
As we’ve said before, a hike is coming, but American complaining only makes it harder for the Chinese government to implement it without looking like they’ve sold their citizens out due to U.S. pressure. This is because there will be some short-term pain within China when a hike happens even though it is in China’s long-term interest.
The Chinese government has already hiked the yuan in the past. Recently, Wen Jiabao explained that future flexibility was still in the cards, despite appearing to present a sharp rebuke of America’s escalating yuan criticism.
While telling China it’s their choice to hike the yuan might not play too well within the U.S. right now, the reality is that this tactic is in the most likely to make a hike happen. Explain why it’s in China’s interest and then leave it for them to connect the dots.
Thus here Geithner gets it right. He’s actually paving the way for a hike to happen.
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