Natalia Rojas: The U.S. - China S&ED, and Depreciation

        The U.S.–China Strategic and Economic Dialogue (S&ED) was established by President Barack Obama in 2009. S&ED is a set of meetings between high level authorities of each of the respective countries; including authorities such the President and Premiers of China and the U.S. Secretaries of State and Treasury. The dialogue includes meetings on U.S. – China military strategy and international economy, for this post, I will be focusing on the economic dialogue. The Sixth Dialogue happened this past July between the Secretary of Treasury Jack Lew, President Xi Jinping, and other senior officials.

The manipulation of the Chinese currency, the Yuan (also known as the Renminbi), by the People’s Bank of China has been under serious criticism by the international community. The depreciation of the currency has allowed for the Chinese to maintain a high export ratio, making the exports of other countries more expensive for other national consumers and companies. Depreciation is the act of manipulating one’s currency to a lower value against the dollar. Even further the Chinese banks were ordered to purchase more U.S. dollars to further depreciate the price of the yuan. Therefore, more countries would purchase their exports.

The importance of the S&ED is to allow the United States to advice and reform Chinese monetary policy without unwarranted interference. The United States emphasized the need for China to support fair competition. The outcomes of the dialogue include China’s agreement to stricter competition law, state transparency, disciplining export financing, and curving excess production. Within the dialogue the two countries took some time to discuss strengthening trade relations, including: intensifying the bilateral investment treaty that in 2015 will aim to have equal access and treatment in each other’s markets.

To tackle China’s currency depreciation manipulation, the country agreed to have financial regulatory cooperation with the U.S., which will direct auditor regulators from both countries to establish cross border inspections of banking policy. As well, China is taking the steps to subscribe to the IMF’s Special Data Dissemination Standard (SDDS) that will advise Yuan policy and secure exchange rate transparency. (U.S. Department Of The Treasury)

These dialogues are helping China progress to a Flexible Exchange Rate System that will be determined by a free market. Like many economists have theorized, the United States is taking a pro-active role to increase global interdependence of monetary policy. The United States has taken a prescriptive role to tailor the Chinese monetary policy to possibly resemble theirs in the future. Liberals see the S&ED as a U.S. institution that will facilitate cooperation, because without this institution cooperation would not be easy – especially as it can be viewed that U.S. and China are worthy competitors.  This dialogue is all in hopes of reforming a new global economy including growth and fair trade.

U.S. Department Of The Treasury. Press Center: Sixth Meeting of the U.S. - China Strategic and Economic Dialogue Fact Sheet, Economic Track. 11 July 2014. <http://www.treasury.gov/press-center/press-releases/Pages/jl2563.aspx>.