China would rather rely on market-oriented forces to determine the renminbi’s value than defend its currency by dipping into its $3 trillion foreign exchange reserves amid trade disagreements, analysts said.
The United States Treasury announced on May 29 that it could not label China as a “currency manipulator” after Washington monitored the recent performance of the RMB.
No evidence was found to show Chinese monetary authority intervention in foreign exchange markets over the past several months, according to the US Treasury’s semiannual foreign-exchange report to Congress.
The May report summarized that China’s growth appears to be stabilizing on the back of recently enhanced supportive measures.
The report expanded the number of countries it scrutinizes for currency manipulation to 21 from 12. Countries with a current account surplus with the US equivalent to 2 percent of GDP were put on the watch list, compared with 3 percent of GDP before.
China didn’t meet the “currency manipulator” criteria listed by the US Treasury, but Washington will continue assessing the RMB’s performance given China’s large trade surplus with the US, the report said.
The US Treasury removed India from the watch list, while it added Singapore, Malaysia and Vietnam.
“Chinese authorities have not used the exchange rate in prior easing cycles to support growth, and they are unlikely to do so now, as this could pose macroeconomic stability risk,” said Andrew Fennell, lead sovereign analyst for China at Fitch Ratings.
The world’s second-largest economy maintained its foreign exchange reserves at $3.095 trillion at the end of April. The reserve amount was stable, although it slightly retreated from $3.098 trillion at the end of March, according to the State Administration of Foreign Exchange.