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Ted Butler: All into silver now

Section: Daily Dispatches

China Told by US to Revalue Renminbi by 10%

By Andrew Balls
Financial Times, London
Tuesday, May 24, 2005

WASHINGTON -- The US Treasury has told the Chinese authorities that
they must revalue their currency by at least 10 per cent against the
dollar to prevent protectionist legislation in the US Congress.

Henry Kissinger, former US secretary of state, is one of a number of
unofficial envoys who have impressed upon China the urgent need for
action on the 10 per cent target, and on the seriousness of the
threat from Congress, people with familiar with the administration's
efforts said.

As well as the minimum 10 per cent target revaluation, Dr Kissinger
was briefed by the Treasury on the need for other measures, such as
a shift to a currency band against the dollar or a basket against a
number of currencies to replace the peg.

Bill Rhodes, senior vice chairman of Citigroup, and Brent Scowcroft,
who was national security adviser to President Ford and President
George H. W. Bush, have also acted as unofficial envoys on behalf of
the present administration.

Mr Kissinger and Mr Scowcroft were not immediately available for
comment. Mr Rhodes declined to comment on talks with Beijing but
said: "Apart from any external pressure, I think that it is in
China's own interest in the coming months to move toward a market-
based interest rate regime, accelerate the opening of the capital
account, and move to a more flexible exchange rate system."

Tony Fratto, US Treasury spokesman, refused to comment on the 10 per
cent minimum target. "We have made it clear that the interim step
should be of sufficient magnitude and flexibility to quell
speculative financial flows," he said. "Without commenting on
particular individuals, I would say that it is important for the
Chinese authorities to hear from respected individuals who can
provide an accurate analysis of the American political environment
on this issue."

There was a marked shift in the Treasury's strategy ahead of last
month's meeting of the Group of Seven leading industrial countries,
with talk of the need for currency flexibility replaced by the call
for urgent action.

The administration has been spurred by concern over a bill
championed by Charles Schumer, Democratic senator, that would impose
trade sanctions if China does not act within six months.

When John Snow, Treasury secretary, released the department's report
on trade and exchange rates last week, he said that the Treasury had
called for currency flexibility and that an interim step was needed.

The message was that China needed to act within the next six months.
A senior administration official said at the time that a 5 per cent
revaluation would not be enough.

Alan Greenspan said on Friday in response to a question at the
Economic Club of New York that a notional 20 per cent revaluation of
the renminbi would have little impact on the US trade balance.

Many experts on China say that the increased pressure from the
United States may make it harder for the Chinese authorities to take
action, and in particular for those who favour a shift in the
currency regime to win the argument in Beijing.


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