US Senate passes currency bill despite China's opposition; Greece gets next installment of bailout loan

Updated On: Oct 12, 2011

The US Senate on Tuesday passed a controversial currency bill which aims to penalise China for holding down its currency. 

The Currency Exchange Rate Oversight Reform Act was passed in a vote of 63-35 at the Senate. The bill is especially directed at China's currency, the yuan, which the US claimed is undervalued to make Chinese exports to the US cheaper.

Max Bacus, chairman of the Senate finance Committee said that this bill “sends an important message to China." Several key leaders in US are of the opinion that this bill is an important step in ending China's currency manipulation and is needed to force China to abide by world trade rules.

But China has expressed strong opposition, warning of a possible trade war. Ma Zhaoxu, spokesman for China's Foreign Ministry, commented that the US Senate's move "seriously violates rules of the World Trade Organization and obstructs China-US trade ties."

On the diplomatic front, China appears to be taking it a step at a time. During the second leg of a Sino-US Asia-Pacific forum in Beijing, Vice-Minister of Foreign Affairs Cui Tiankai spoke with US Assistant Secretary of State Kurt Campbell , just hours before US lawmakers headed towards a final Senate vote on legislation that would retaliate against Beijing for alleged currency manipulation. However, neither side spoke specifically on the currency bill. Instead, Mr Cui sought to ease tensions stating that the differing opinions of China and the United States on international and regional issues are “fairly normal” and that “[such a] consultation aims to strengthen communication and coordination in order to cope with challenges in regional and international affairs."

However, the prospects of the bill becoming law remains in doubt, as it still has to clear the House of Representatives and then be signed by US President Barack Obama before becoming law. Both Obama and House Speaker John Boehner have expressed their reservations about the legislation.

The value of China’s currency, the yuan, has become an increasingly contentious issue in US-China relations. Most analysts say the Chinese yuan is undervalued against the US dollar by 25 percent, with some US lawmakers putting the difference up to 40 percent.There has been some appreciation of the yuan in the past year, but not enough to appease critics. China’s critics contend that Beijing intervenes in the currency markets to keep the value of the yuan artificially low, making Chinese goods cheaper abroad and American goods more expensive in China. Lawmakers and some economists say the policy undercuts American businesses and worsens the American unemployment rate.

Report:  US Currency Bill Passes Senate Vote (Financial Times, 11 Oct 2011)

Report: China says US risks trade war with bill targeting currency (Bloomberg News, 5 Oct 2011)

Report: US Senate’s bill on tariffs angers China (The New York Times, 4 Oct 2011)

In Europe, Greece is likely to receive the next batch of its bailout loans in early November, if the eurozone and International Monetary Fund (IMF) approve the conclusions of the financial review they have completed.

On Oct 11, Greece's international creditors—inspectors from the IMF , the European Commission and the European Central Bank (collectively known as the troika)—cleared the way for Athens to receive another slice of aid needed to stave off a Greek default.  Greece will get an €8 billion (USD11 billion) loan tranche early next month.

The announcement came a day after the troika wrapped up their latest review of the country's finances and economic plans.  This potentially averts a bankruptcy looming over Greece. Greek Finance Minister Evangelos Venizelos, who has been meeting the inspectors in recent days, tried to strike a reassuring note on the day of the announcement, ruling out any suggestion that Greece could be forced out of the shared currency.

"Greece is and will always be a member of the euro zone, a member of the euro," he said.

To qualify for the funds, the Greek government has pledged reforms aiming to slash the deficit and overhaul the economy. But it has frequently missed its targets, forcing it to pile on ever more austerity measures such as increased taxes and cuts to public sector salaries and pensions. An uncontrolled Greek default on its debt would have unpredictable consequences, potentially unleashing a crisis which could destabilise the whole euro zone.

Greece has been dependent since May last year on a €110 billion (USD 146 billion) bailout package from other eurozone countries and the IMF. Without the next €8 billion loan installment, it will run out of money to pay salaries and pensions in mid-November.

Report:  New Effort Focuses on Bigger Greek Write-Down  (The Wall Street Journal, 11 Oct 2011)

Report:  EU, IMF conclude Greek review, protesters block ministries (Reuters, 11 Oct 2011)

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