WTO Debates Low Yuan, High Real

The relationship between exchange rates and trade took centre stage at the WTO last week, as members gathered for a highly-anticipated seminar on the subject. The 27-28 March gathering was convened in response to Brazil’s requests last year for the examination of possible trade tools to counter the impact of currency fluctuations.

The two-day event featured speakers from the private sector, public sector, academia, and international organisations, and was attended by representatives from various WTO members. India was represented by the RBI.

As expected, China’s strict valuation of its currency, the renminbi, was the subject of a few sharp exchanges between Chinese representatives and US officials at the seminar, one developed country delegate told.

“A strong consensus now exists on the importance of promoting market-determined exchange rate systems, enhancing flexibility to reflect underlying economic fundamentals, avoiding persistent exchange rate misalignments, and refraining from competitive currency devaluation,” US Deputy Assistant Secretary of the Treasury Mark Sobel argued during the seminar.

In response to US comments at the event, a Chinese representative argued that US fiscal policy was largely at fault for Washington’s difficulties, not Beijing’s currency policies, according to sources who attended the seminar.

At last November’s G-20 summit, China pledged to “increase exchange rate flexibility consistent with underlying market fundamentals,” a promise that elicited praise from US President Barack Obama at the time.

Meanwhile, leading industrial nations have also faced scrutiny from Brazil, with the fast appreciation of the real - Brazil’s currency - in the first months of 2012 leading Brazilian officials to sound new warnings of a “currency war” in light of the “tsunami” of cheap money from European countries, among others.

“Some felt that the exchange rate misalignments were due to more direct intervention on the exchange rate markets and others felt that the main source of the problem was by means of fiscal and monetary policy that provoked very large flows of capital across borders,” Brazilian Ambassador Roberto Azevedo told reporters last week after the seminar.