Sec. Snow: Intrest Rates Will Not be Affected by Yuan Revaluation

SEC. SNOW: INTEREST RATES WILL NOT BE AFFECTED BY YUAN REVALUATION

Schumer: 'It's Great News that Sec. Snow Has Confirmed What Many of Us Believed, That Our Interest Rates Would Be Unaffected if China Revalues Yuan'

Similar Sentiment Echoed by Federal Reserve Governor Bernanke Yesterday

Today in the Senate Banking Committee, Treasury Secretary John Snow, in response to a question posed by Senator Chuck Schumer, said that the U.S. "has little to fear on the interest rate issue if China revalues its currency." On the heels of strong vote in the Senate last month on the China Fair Trade Bill, introduced by Sen. Schumer and Republican Sen. Lindsey Graham (SC), these recent statements by Sec. Snow and also Federal Reserve Governor Ben Bernanke give further reason for the Chinese to act quickly to revalue their currency.

Secretary Snow said at the Banking Committee hearing, "I don't think we need fear much at all on the interest rate issue" from Chinese revaluation.

It was also reported today that Ben Bernanke, the Federal Reserve governor who has been nominated for Chief Economist at the White House, said yesterday that a rise in China's currency should not harm the U.S. economy and also suggested that there was not a risk of Asian governments ceasing the purchase of U.S. Treasury bills.

Schumer stated, "It is great news that Secretary Snow has confirmed today that American interest rates would not rise if China revalued its currency. This is another positive step towards getting Chinas to do what everyone thinks they should do - play fair in the global trade community."

The Schumer-Graham China Free Trade bill, which was offered as an amendment to the State Department authorization bill, got an overwhelming bi-partisan vote in the Senate last month (67-33). It allows for a 180-day negotiation period between the US and China to revalue its currency, if the negotiations are not successful, a temporary across the board tariff of 27.5% will be applied to all Chinese products entering the United States - a penalty that corresponds to their estimated currency advantage. Since economists estimate that China undervalues its currency between 15 percent and 40 percent, 27.5% represents the midpoint range. Furthermore, if the President determines that at the end of the negotiation period that China has developed and started actual implementation of a plan to revalue its currency, he may delay imposition of the tariff for another 12 months.

Immediately following the Treasury report on currency rates released recently, Senators Schumer and Graham also introduced the Currency Manipulation Definition Bill. This bipartisan bill would amend the Exchange Rates and International Economic Policy Coordination Act of 1988 to clarify the definition of manipulation with respect to currency, reduce the global account surplus requirement necessary for the United States to take action (only requires bilateral account surplus), and establish additional reporting guidelines for Treasury to include in their bi-annual reports to Congress.

Schumer also said, "The Administration's strategy of 'quiet diplomacy' has yielded few tangible results, and it's time for our government to take more specific action. Simply put, if you believe in free and fair trade, you should want the Chinese to play by the rules, and you should want their currency to float. But our bill sends a clear signal to the Chinese that if there isn't some movement on their part, the U.S. Congress will act.

"It's unclear to me and Senator Graham what else the Chinese would have to do - or not do - to have the Administration finally find them guilty of manipulation. You've stepped up to the plate, now it's time to swing the bat," Schumer concluded at today's hearing.

http://schumer.senate.gov/SchumerWebsite/pressroom/press_releases/2005/PR41687.Interest%20Rates.052605.html