US Treasury Secretary John W. Snow said, in a report to the US Congress on International Economic and Exchange Rate Policies, there is no evidence that China is manipulating its currency to gain unfair competitive advantages. The RMB exchange rate reform announced by the People's Bank of China on July 21 was an important step in enhancing RMB flexibility and plays a key role in reaching the conclusion that China is not manipulating its currency.

Before the report was released the international community was unable to form a unanimous opinion as to the US' possible conclusion. On the one hand, as US trade deficit against China expands trade protectionism is rising in the US and pressing for continued pressure. On the other hand, the Chinese and US governments and academic circles are conducting active consultations and studies, hoping to solve the problem in a more friendly way.

The whole world is focusing attention on the US position on this issue, which would directly affect the stability of global exchange rate market. More importantly, according to the US Omnibus Trade and Competition Act in 1988 if the US confirmed that China manipulates currency to gain unfair competitive advantages US trade sanction measures would follow hard at heel.

Mr. John W. Snow finally made a sensible conclusion, which is based on existing economic theories and historical lessons. China has been keeping a relatively stable RMB exchange rate system in relation to the USD since the 1990s and the People's Bank of China has to keep intervening in the forex market to keep the exchange rate stable.

This kind of fixed exchange rate system was adopted by most countries after the end of WWII and it was only after the dissolution of the Bretton Woods System that developed countries began to give up on it and shifted to a more flexible exchange rate system. If China is accused of manipulating currency for adopting such system it is obviously quite unfair and even ridiculous. China is only one of the countries adopting such an exchange rate system and has been pursuing this system for quite a long time. So why blame only China? And why now?

The fundamental reason inducing the US to make this conclusion is that China and the United States do not clash in their basic interests. The US has always been keen to see a more flexible RMB exchange rate so as to turn round its trade deficit and reduce risks in the financial market.

From China's point of view, increasing RMB exchange rate flexibility has been identified as the goal of the Chinese government's exchange rate reform. Whether from the consideration of maintaining balance of international payment or that of optimizing domestic industrial structure and realizing more sustainable economic growth, China needs to reform existing exchange rate system and enhance RMB exchange rate flexibility. In this regard, China and the US do not have fundamental differences. If any, the only difference is that the US hopes for a speedier pace while China hopes for more stability.

Through broad contacts with the Chinese side, the US officials and experts all gradually come to the conclusion that increasing RMB exchange rate flexibility cannot be accomplished in one action. Adjustment of the RMB exchange rate system must be coordinated with the development of the Chinese domestic financial market, particularly the forex market. Adjusting the RMB exchange rate system in a gradual manner is an important guarantee of maintaining the stability of China's macro economy.

As one of the most important trade partners of the US China's economic stability also serves the US' interests. To unilaterally force RMB appreciation through unfriendly methods will not only backfire, but also lead to trade sanctions that hurt both China and the US as well as unbearable damages on both sides.

Carried on the third page of People's Daily on Dec. 1 the article is translated by People's Daily Online