US Treasury Secretary Janet Yellen stated on Wednesday that the US will "react strongly" against countries attempting to manipulate their currencies for competitive advantage, though no such market intervention is currently observed.
During a live interview on Bloomberg Television, Yellen emphasized that she does not foresee any threat to the dollar's status as a reserve currency. She noted that no other currency currently rivals the dollar's global use in financial markets, trade, and other transactions.
When asked about the possibility of the Trump administration attempting to weaken the dollar through a new version of the 1985 Plaza Accord, Yellen clarified that the Biden administration believes in allowing markets to determine the dollar's value. She stated, "We do not support countries that try to manipulate their own currencies to gain a competitive advantage, and we are vigilant and react strongly when we see such actions."
Yellen's comments did not specifically target any country. However, they followed a Reuters exclusive report suggesting that Chinese authorities might consider allowing the yuan to weaken in 2025 to counteract potential higher tariffs under President-elect Donald Trump. Trump had pledged to impose tariffs of at least 60% on all imports from China.
The Treasury's recent semi-annual currency report found no evidence of manipulation by major trading partners but continued to monitor China due to its significant trade surplus with the US and lack of transparency in its foreign exchange practices. This included a slight decline in China's global current account balance despite increased export volumes, indicating lower export prices.
During the peak of the US-China trade war in August 2019, Trump directed then-Treasury Secretary Steven Mnuchin to label China a currency manipulator. However, this move was largely seen as a negotiating tactic, and the designation was dropped in January 2020 when Chinese officials arrived in Washington to sign a trade deal with Trump.
Yellen, who spent two years rebuilding US economic relations with Beijing, stressed the importance of maintaining ongoing communication with Chinese officials at all levels. She highlighted the need for discussions on policy disagreements and areas of mutual interest, such as climate change, pandemics, and financial stability. "It's crucial to have open channels of communication. It helps prevent misunderstandings," Yellen said, adding that these channels have been used to explain actions like export controls and recent outbound investment restrictions to avoid unnecessary tensions.
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