War of Words between China and America

While the world economy is falling into whirlwind recession, the abysmal depth of depression not seen since the infamous 1930s, the world doesn't need unnecessary tensions between China and America. "In a written response to questions from senators debating his confirmation, Mr Geithner accused China of “manipulating” its currency and promised that the Obama team would push “aggressively” for Beijing to change its policies. The sharp tone and use of the legally-loaded term “currency manipulation” ricocheted through financial markets as investors shuddered at the prospect of a Sino-American spat in the midst of a global slump."

Is there any truth on following speculation?

"American policymakers have long pushed Beijing to accelerate the appreciation of the yuan, arguing that China’s exchange-rate policy played a big role in creating the global imbalances and that—both for the sake of China’s economy and the rest of the world—the currency needs to strengthen."

Maybe. But there are other factors contributing to global financial meltdown, including the slumping demand and loss of confidence of consumers around the globe toward markets and also to their manipulative governments. The Economist correctly observes that "Currency movements switch demand between countries; they do not create it. In the short-term, therefore, the outlook for the world economy depends on whether governments’ stimulus packages are successful and, right now, team Obama would do better to focus on the scale, nature and speed of Beijing’s stimulus measures than rant about the currency. What’s more, the evidence for currency manipulation is weakening. Although China still runs a huge current-account surplus, it is no longer accumulating foreign-exchange reserves at a rapid clip, as capital is flowing out of the country."

The New York Times provides more background info: "In 2005, the Chinese government ended a strict peg between the Chinese currency, called the renminbi or the yuan, and the American dollar. Since then, the yuan has floated in a narrow band against the dollar. The value of the currency is now 6.84 yuan to the dollar....“the price advantage of Chinese exports may not be a result of currency issues, but the country’s lower costs of labor, resources and land.”The global financial crisis has resulted in foreign companies placing fewer orders with exporters in China, leading to a severe downturn in the export industry. Chinese leaders now say the nation must move away from an economy so dependent on exports."

Links to articles: War of Words & China Rejects Currency Manipulation Charge.