Sticks and stones

12 March 2010 By John Foley Follow @johnsfoley

Premier Wen’s muscular denial of a toocheap currency is sure to raise American hackles. If the U.S. Treasury retaliates by officially branding China a currency manipulator next month, it could kick off titfortat trade sanctions with damaging consequences for all.

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Premier Wen Jiabao on March 14 rejected criticism that China's currency is kept artificially cheap to boost exports.

In a press conference to mark the end of the 10day National People's Congress, Wen stated that Chinese policymakers "do not believe the yuan is undervalued". He warned against "strong measures" to force countries to appreciate their currencies, and pledged to keep the yuan "basically stable".

The U.S. Treasury Department has the option to label China a "currency manipulator" in its semiannual report due on April 15. If it does, the department must begin negotiations with China, which could lead to sanctions. President Obama said before his election that China's trade surplus was a result of its "manipulation of its currency's value".

China abandoned its fixed currency peg against the dollar in 2005. Since then, the value of one yuan has risen from $0.12 to $0.15, and from 0.10 euros to 0.11 euros.

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