Friday, July 9, 2010

There's Some Back Door Negotiations Going On

First, China announces it will not dump US Treasury Holdings:

China's foreign-exchange agency sought to ease concerns about how it uses its huge currency reserves, saying it operates on market principles and would never wield its holdings of U.S. government debt as a threat.

The statement Wednesday by the State Administration of Foreign Exchange was the latest in a series of moves by the agency aimed at addressing concerns about its influence. Presented in question-and-answer form, the statement, posted on the agency's website, rebutted what it portrayed as misconceptions about its management of China's $2.4 trillion in foreign-exchange reserves, the world's largest.

The statement rejected the notion posited by some analysts and American politicians that China's large holdings of U.S. debt constitute a "threat" to the U.S. The agency said the market for U.S. sovereign debt remains an important one for China's reserves, due to its security, liquidity, large capacity and low transaction costs.

The sovereign debt of some other countries may not be issued in sufficient quantities to meet China's needs, the agency said, without naming countries.

The foreign-exchange administration's investment actions are frequently the subject of speculation that sometimes affects global markets. While it long refused to comment on such issues, the agency has become somewhat more forthcoming over the last year since its U.S.-educated chief, Yi Gang, took the helm.

Then we learn the US will not label China a currency manipulator (wink, wink -- nudge, nudge).

The US declined to name China as a currency manipulator in a politically sensitive report on Thursday, citing Beijing’s loosening of the renminbi peg in June as “a significant development”.

The report had been delayed from April as part of a process of quiet diplomacy to encourage China to allow some flexibility in the exchange rate.

The inter-government phones have been busy.