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1 [1] (May 24, 2019)

handle is hein.crs/govzvn0001 and id is 1 raw text is: Congressinal Research Service Ilnform ing the legaslative debate since 1914 Updated May 24, 2019 China's Currency Policy China's policy of intervening in currency markets to control the value of its currency, the renminbi (RMB), against the U.S. dollar and other currencies has been of concern for many in Congress over the past decade or so. Some Members charge that China manipulates its currency in order to make its exports significantly less expensive, and its imports more expensive, than would occur if the RMB were a freely traded currency. Some argue that China's undervalued currency has been a major contributor to the large annual U.S. merchandise trade deficits with China (which totaled $419 billion in 2018) and the decline in U.S. manufacturing jobs. Legislation aimed at addressing undervalued or misaligned currencies has been introduced in several congressional sessions. On May 23, 2019, the U.S. Department of Commerce published a notice in the Federal Register proposing to make an undervalued currency (as determined by the U.S. Department of Treasury) an actionable subsidy under U.S. countervailing duty proceedings. Economic Effects of the RMB's Value The effects of China's currency policy on the U.S. economy are complex. If the RMB is undervalued (as some contend), then it might be viewed as an indirect export subsidy which artificially lowers the prices of Chinese products imported into the United States. Under this view, this benefits U.S. consumers and U.S. firms that use Chinese-made parts and components, but could negatively affect certain U.S. import-competing firms and their workers. An undervalued RMB theoretically might also raise the price of U.S. exports to China. However, China's large purchases of U.S. Treasury securities (which have been a consequence of its currency policy) have helped the U.S. government fund its budget deficits, which help keep U.S. interest rates low. RMBDollar-Exchange Rate Trends China has largely pegged the RMB to the dollar for several years. Each day, China's central bank announces a central parity rate of exchange between the RMB and the dollar (and other currencies), buys, and sells as much currency as needed to reach a target rate within a specific band. In 1998, the Chinese government's central target exchange rate with the dollar on average was 8.28 yuan (the base unit of the RMB) per dollar, and this rate generally remained consistent through June 2005. Due in part to pressure from its trading partners, including the United States, China announced in July 2005 that it would appreciate the RMB by 2.1%, peg its currency to a basket of currencies (not just the dollar), and allow the RMB currency to gradually appreciate (described by some as a managed peg), which it did, over the next three years. In July 2008, China halted RMB appreciation because of the effects of the global economic crisis on China's exporters, and then resumed RMB appreciation in June 2010. From June 2005 through June 2015, the RMB appreciated by 35.3% on a nominal basis against the dollar. The yuan-dollar exchange rate has experienced volatility over the past few years. On August 11, 2015, the Chinese central bank announced that the daily RMB central parity rate would become more market-oriented, However, over the next three days, the RMB depreciated by 4.4% against the dollar and it continued to decline against the dollar throughout the rest of 2015 and into 2016. From August 2015 to December 2016, the RMB fell by 8.8% against the dollar. From January to December 2017, the RMB rose by 4.6% against the dollar. Since 2018, the RMB's value against the dollar has generally trended downward. Many economists contend that the RMB's recent decline has largely been caused by China's slowing economy and by the uncertainties resulting from the ongoing U.S.-China Section 301 trade dispute, which has led to three rounds of tariff hikes on a significant level of bilateral trade. From March 2018 (when the Trump Administration announced it would pursue punitive measures under Section 301 against China) to May 2019, the RMB depreciated by 8.2%. On May 10, 2019, the Trump Administration increased tariffs on the third tranche of Section 301 tariff hikes (affecting $200 billion worth of imports to China) from 10% to 25% and proposed to raise tariffs on nearly all remaining imports from China. These measures could negatively affect China's economy. Others charge that China has intervened in currency markets to push down the RMB's value in order to offset the impact of U.S. tariff hikes on the U.S. economy. Figure I. Average Monthly RMB-Dollar Reference Rates: January 201 5-May 2019 (Yuan per Dollar) 6 _ 6.1 6.2 6.3 . 65 6 6 - - - - - - - - - 67 6.8 69 7 Source: Bank of China. Note: Chart inverted for illustrative purposes. Factors Used by Some Analysts to Assess the RMB's Valuation China's large trade surpluses and accumulation of foreign exchange reserves (FERs) have been cited by some analysts ttps:i/crsreportscong ressgov

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