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August 17, 2015

MSCI Comments On China’s Efforts To Devalue Its Currency

Last Tuesday, the Chinese government announced it would start devaluing its currency. The rapid drop in the Yuan not only indicated the Chinese economy is in much-worse shape than assumed, it also confirmed MSCI’s long-held belief that China continues to manipulate its currency. 

In response to the announcement, MSCI President and CEO M. Robert Weidner said, “There are some in Washington, including officials at the Treasury Department, who still refuse to call China a currency manipulator. Last week’s announcement makes it clear those policymakers are wrong in their approach toward the Chinese government. It is time members of the executive branch and Congress acknowledge reality and approve strong, enforceable provisions to combat currency manipulation. Congress missed that opportunity this summer by voting down a bipartisan amendment offered by Sen. Rob Portman and Sen. Debbie Stabenow, but opposed by the White House, to Trade Promotion Authority legislation. When they come back from recess in September, lawmakers will convene to finalize a customs reauthorization bill. MSCI once again strongly recommends lawmakers preserve Senate-passed language in that bill that would require the U.S. Commerce Department to investigate allegations of currency manipulation and consider countervailing duties to address it. While that provision isn’t the only step necessary to address currency manipulation – President Obama must also instruct the Treasury Department to take action – it’s an important first step.” 

Several individuals and organizations expressed the same sentiment last week. Rep. Tom Reed (R-NY) called China’s action a “direct threat” to U.S. manufacturing jobs. Rep. Reed also said, “It is this kind of manipulation that creates an unfair playing field – that is why we need fair trade policies that punish nations that engage in this type of unfair behavior.” Several other lawmakers, including Sen. Bob Casey (D-PA) and Sen. Chuck Schumer (D-NY), also criticized China. The Alliance for American Manufacturing said, “American manufacturers and workers are paying the price for the Obama administration's soft approach to China. China's currency manipulation is undermining our economic recovery, particularly in the vulnerable manufacturing sector.” The AFL-CIO said China’s move would likely further reduce employment in the U.S. manufacturing sector and result in more closed factories. 

The U.S. Treasury Department said it was too soon to tell the impact the new policy would have on the U.S. or global economy. 

Later in the week, after three days of drops in the Yuan, the Chinese government promised it would act to stabilize the Yuan “when the market’s volatility is excessive.” Deputy Governor Yi Gang said the Chinese government would “Trust the market, respect the market, fear the market, and follow the market.”