Metalcasting industry responds to U.S. Treasury report on Asian currency.

The U.S. metalcasting industry recently criticized the U.S. Treasury Dept.'s annual report on international exchange rate policies in which the Treasury Dept. once again found that no major U.S. trading partner is manipulating its currency to gain an unfair trade advantage.

The Treasury Dept. issued a similar finding last year to widespread criticism in Congress from members of both parties and the metalcasting industry. Many have blasted China, which pegs its currency, the yuan, at 8.28 to the U.S. dollar. Critics believe that a fixed rate gives China an unfair trade advantage by keeping its currency undervalued thereby making its exports cheaper and imports more expensive.

But, in its report released Dec. 3, the Treasury Dept. said, "while a number of economies continue to use pegged exchange rates and/or intervene in foreign exchange markets, a peg or intervention does not in and of itself satisfy the statutory test for currency manipulation."

The report, mandated by the Omnibus Trade and Competitiveness Act of 1988, said the Bush Administration, "has urged Chinese leaders to move as soon as possible to greater flexibility and has initiated an unprecedented level of engagement with the Chinese government ... to help bring this about."

The engagement has included high-level meetings of finance ministers and central governors in settings such as the G-7 meeting in October, the report said.

According to the report, the Treasury Dept. set up a technical working group with China that met three times in 2004 on its currency. The first session in February 2004 addressed currency risk in banking systems. The second session in June dealt with banking supervision, credit analysis and resolving nonperforming loans. In September, the final session focused on the management of foreign reserves and the supervision of a currency derivatives market.

AFS, as part of the Coalition for a Sound Dollar, expressed strong concern that the Treasury Dept. once again declined to cite any Asian countries as manipulating their currencies to gain unfair trade advantages with the U.S. under the provisions of the Onmibus Trade Act of 1988.

The Coalition noted that four Asian countries (China, Japan, South Korea and Taiwan) increased their foreign currency reserves by $250 billion during the first six months of 2004 by buying dollars in an effort to maintain undervalued levels for their currencies. In doing so, the four nations, which represent almost 50% of the U.S. trade deficit, have sought to gain and keep an unfair advantage in their bilateral trade with their largest market.