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China had told US about plan to revalue yuan

July 25, 2005 18:32 IST
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The Chinese government told United States officials in advance of its plan to drop its currency's link to the dollar last week and raise  its exchange rate, news reports said Monday.

US treasury secretary John Snow learned more than one month ago of the tentative plan and Chinese officials gave him details on the change and its timing before the announcement, The Financial Times and The Asian Wall Street Journal said.

The unusual advance disclosures by the secretive Chinese government helped to smooth the way for the change and assure American support, the newspapers said, citing unidentified sources.

The announcement that Beijing was switching to a more flexible system based on a basket of foreign currencies that could let the yuan rise in value over time came after years of study by Chinese finance officials and a lengthy lobbying campaign by Snow and other American officials.

China's trading partners had been pressuring Beijing to raise the yuan's exchange rate, complaining that it was undervalued and gave Chinese exporters an unfair advantage. Some US lawmakers had even threatened to impose punitive tariffs if Beijing didn't raise the value of the yuan.

"A week before Thursday's announcement, the (US) Treasury received a firm signal from China that revaluation was imminent. Mr Snow was informed in advance of the timing and details of the new rate regime," the Financial Times said.

"He kept the market-sensitive information secret from Treasury colleagues but assured Beijing the US would warmly welcome the move and that there would be broad international support," the report said.

Snow assured Beijing of US support and persuaded lawmakers to postpone any punitive action after China said it wouldn't do anything under pressure, the Financial Times and the Journal said.

In mid-July, Senator Charles Schumer said he and other lawmakers were told during a meeting with Snow and Federal Reserve Chairman Alan Greenspan that China would soon change its currency policy, and that he would delay a bill he had co-authored that would impose penalty tariffs on Chinese imports if Beijing did not act quickly.

The People's Bank of China announced Thursday it was cutting the yuan's peg to the dollar and would start linking its value to a collection of unspecified currencies. The bank immediately raised the yuan's value by 2.1 percent against the US dollar to 8.11 yuan from 8.28, where it had been set for more than a decade.

The Chinese central bank wanted the yuan's value raised by 5 percent, the Journal said. But the Chinese Cabinet decided on the lower increase "under pressure from other ministries that feared the impact on China's exports," the report said.

Chinese officials had been studying other governments' foreign-exchange policies for years.

Last year, they stepped up visits to Singapore to look at the Southeast Asian trading powerhouse's use of a "managed floating exchange-rate system," the type of mechanism that Beijing adopted last week, the Journal said.

In May, Snow appointed a special envoy to Beijing on the currency issue, the Journal said.

The envoy, US Treasury official Olin Wethington, made three unpublicized, weeklong trips to Beijing, where he warned Chinese leaders of potential "adverse consequences on the US side" if they didn't take action, the newspaper said.
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