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US gives currency diplomacy with China another go

The Treasury's currency report delay suggests Washington wants to give diplomacy another chance to convince China it is in everyone's interest to speed up the yuan's rise.

world Updated: Oct 18, 2010 00:10 IST

The Treasury's currency report delay suggests Washington wants to give diplomacy another chance to convince China it is in everyone's interest to speed up the yuan's rise.

By delaying the report until after a Group of 20 leaders summit in Seoul next month, the United States can defuse some political tension. However, it also puts the onus on the G20 to deliver more than just rhetoric on foreign exchange rates.

Treasury Secretary Timothy Geithner probably won't be winning many friends in Congress, where lawmakers from both political parties back taking a tougher tack on Beijing.

G20 looms larger

Currencies were already pivotal at G20 talks after IMF meets last weekend failed to ease tensions. Forging consensus in such a diverse group will be hard.

There does not seem to be broad support for a "Plaza Accord" type of agreement on how best to realign exchange rates. European officials have stuck to well-rehearsed statements that excessive currency volatility is unwelcome.

Geithner toughened his words somewhat last week, saying markets should determine exchange rates.

Taking out politics
Waiting until after the G20 meet means the Obama administration won't have to reveal its decision until after November 2 congressional elections.

China's currency is a source of frustration for unions and manufacturing-heavy states.
But the delay can spur Congress to act on legislation that would penalise China for keeping the yuan low. A bill that will punish China for its currency practices passed in the House of Representatives and two Democratic senators said on Friday Congress was prepared to move ahead with legislation.

Geithner had said that he shared Lawmakers frustration with Beijing's slow progress in allowing yuan to rise.