and the Exchange Rate Issue
By the summer of 2003
the issue of China’s exchange rate policy became a clear front burner issue. General
concerns about the pace of the American economic recovery and the reduction in U.S. manufacturing jobs continued. It was understandable, therefore, that the
American people and many of their representatives in Congress would point to
the large U.S. bilateral trade deficit with China and the pegged exchange rate
at 8.28 RMB per dollar as the source of the problem.
President Bush and his
administration took these issues very seriously from the outset. Since the exchange rate is clearly a Treasury
issue, the Treasury had an important role to play in developing and
implementing the Administration’s strategy.
That strategy was to focus on exchange rate flexibility rather
than simply revaluing the exchange rate.
From the outset the emphasis was on financial diplomacy, rather than the
isolationist legislation that was being proposed in Congress. Moreover, we wanted a multilateral approach,
with the other G7 countries playing a role along with the United States. The
States would also provide technical assistance to China so it could more expeditiously take the
necessary prior steps to prepare for a flexible exchange rate. Treasury
Secretary John Snow traveled to China in September 2003 to make the case that it
was in China’s and the world’s interest to move to a
flexible exchange rate. President Bush spoke with President Hu
about the issue. A process was put in place
to invite the Chinese finance minister and central bank governor to meet with
the G7. Technical teams met in Washington and Beijing.
The first two items in
this section are testimony in which I presented the Administration’s approach
to two important committees of congress early on in the process. The third item
updates the situation, after a trip I made to China in the spring of 2004. I reported that good progress was being made
by the Chinese in preparing to move to a flexible exchange rate, and that
progress continued in the year since. In fact, by the spring of 2005, it was
the Bush Administration view that enough steps had been taken, and that it was
now time to move to a flexible exchange rate.
Exchange Rate Regime and its Effects on the U.S. Economy, Subcommittee
on Domestic and International Monetary Policy, Trade, and Technology House
Committee on Financial Services, October 1, 2003
Relations between the U.S. and China and China's Role in the Global Economy,
House Committee on Ways and Means, Oct
Statement on visit to China, Beijing,
China, May 11, 2004