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US Treasury secretary says China using forex reserves to support currency

US Secretary of the Treasury Steven Mnuchin said on Tuesday that China has used "very significant reserves" to support its currency in a way that benefits the US companies, as China's foreign exchange reserves rebounded to over $3 trillion, reported.

But he stressed that the US should keep an eye on the changes in China's foreign exchange reserves in order to prevent the Chinese companies from using it to gain unfair competitive advantage, according to the report.

Mnuchin made the remarks during an event related to China's economy in Washington.

Mnuchin's remarks came after the China Foreign Exchange Trade System (CFETS) said on May 26 that the Chinese authorities were considering introducing a "counter-cyclical factor" to the existing pricing model of the Chinese yuan's central parity rate against the US dollar. The adjustment is widely believed to moderate pro-cyclical fluctuations driven by irrational sentiment in the foreign exchange market.

The CFETS has said that China's foreign exchange market is vulnerable to irrational expectations due to a certain level of pro-cyclicality, which distorts market demand and supply and increases the risk of abnormal rise in the exchange rate.

During the Washington event, Mnuchin defended US President Donald Trump's work style in dealing with the US-China economic and trade relationship, saying that President Trump prefers to hold separate negotiations with China on many specific issues such as market fairness and openness rather than holding bilateral talks aimed at reaching a comprehensive agreement. He said that the Bilateral Investment Treaty (BIT) between the two countries is expected to be signed if such specific problems could be solved properly.

In April, President Trump backed away from labeling China a currency manipulator, reversing one of the biggest economic promises he made during the presidential campaign. But in a report released in April, the US Department of the Treasury said that it would pay close attention to China's trade and exchange rate policies and urge China to open trade as its trade surplus with the US was still large.

Recently, the China Finance 40 Forum (CF40) and the Peterson Institute for International Economics (PIIE) issued a joint report in which scholars from the two organizations proposed that China and the US should avoid sharp US dollar appreciation against the Chinese yuan, which could pave the way for broader exchange rate cooperation between the two countries.

According to the CF40-PIIE report, China should avert disorderly fluctuations in the exchange rate through policy coordination with the US.

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