None of the United States' major trading partners manipulated their currencies to gain economic advantage in the first half of 2004, the US Treasury Department said in a report released on Friday. In its semi-annual report to Congress on international economic and exchange rate policies, Treasury urged Asian countries with fixed exchange rates - including China - to institute more flexible, market-based exchange rates.
The Treasury said China's fixed-exchange rate regime has made macroeconomic policy-making more difficult. It said the country's accumulation of foreign exchange reserves had fuelled both credit growth and inflation pressures.
"The risk of an inflationary boom followed by the hard landing that has characterised past Chinese cycles remains," Treasury said in the report, which was delayed from its originally scheduled released in mid-October.
The department said China had laid the groundwork for a shift to a flexible exchange rate, and the United States would continue to assist its moves toward flexibility.
"The US government will pursue persistently and firmly its approach to promote economic, financial and market reforms in China and assist China to move as soon as possible to a flexible exchange rate regime," it said. The report also said for current global trade imbalances to be fixed, the United States needs to increase both public and private savings and other economies need to grow more quickly.
However, it said US policies to fix trade imbalances must not undermine either the domestic or global economies. "The policies of all countries affect the global pattern of current account balances," it said. "It is important that policies that the United States follows to reduce global imbalances keep the United States and the world economy strong."
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