China continues to promise currency flexibility

Currency legislation is moving through Congress. The exchange rate flexibility promised by Chinese officials may not be enough to head off a vote for the US to impose sanctions.

Petar Kujundzic/Reuters

A 100 yuan banknote is placed next to a U.S. 100 dollar banknote in this picture illustration taken in Beijing September 24. China promises to pursue currency exchange rate flexibility, while US proposed legislation could lead to sanctions for non-compliance.

By Joe McDonald Associated Press

September 29, 2010 | Beijing

China repeated promises of exchange rate flexibility Wednesday but offered no new measures that might avert a possible vote by the U.S. House of Representatives on currency legislation.

The statement in a central bank report on a quarterly economic meeting reflected currency policy and gave no details of possible changes. It made no mention of demands by some American lawmakers for Beijing to ease currency controls or face possible trade penalties.

Beijing promised a more flexible exchange rate in June when it broke a link between its yuan and the dollar. But the yuan has risen by only about 2 percent since then, fueling demands by American lawmakers for action.

China will continue reforms to "enhance exchange rate flexibility against the backdrop of a recovering global economy," said the report by the People's Bank of China.

The central bank will "further improve the yuan's exchange rate regime based on market supply and demand with reference to a basket of currencies," the report said. It gave no details of possible changes.

Democratic Party leaders say the House will take up a bill this week that would give the U.S. government power to impose sanctions on China or other countries found to be manipulating their currencies to gain trade advantages.

Supporters say the bill would protect U.S. jobs against unfair trade competition at a time of high unemployment. American lawmakers face rising pressure to create jobs ahead of November elections.

Half the yuan's increase against the dollar since June has come this month amid mounting U.S. pressure and threats of possible sanctions.

Critics say the yuan is kept undervalued, giving China's exporters an unfair price advantage and swelling its trade surplus. U.S. manufacturers blame the level of the yuan for the loss of millions of jobs.

Private sector analysts say a rise in the yuan is unlikely to generate U.S. jobs because American factories no longer make the goods produced by China.

IN PICTURES: Some of the world's most eye-catching currencies