Chinese currency remains undervalued: Obama

"I told President Hu (Jintao) that we welcome China's increasing the flexibility of its currency. But I also had to say that the RMB remains undervalued, that there needs to be further adjustment in the exchange rate and that this can be a powerful tool for China boosting domestic demand and lessening the inflationary pressures in their economy," Obama said at a joint news conference with his Chinese counterpart at the White House.
Hu is on a four-day State visit to the United States.

The Renminbi (RMB) is the official currency of China.

"We'll continue to look for the value of China's currency to be increasingly driven by the market, which will help ensure that no nation has an undue economic advantage," Obama said.

Responding to reporter's questions later, Obama identified currency issue as part of the larger problem with China.

"The RMB is undervalued. The Chinese government has intervened very forcefully in the currency markets. They've spent USD 200 billion just recently, and that's an indication of the degree to which it's still undervalued. President Hu has indicated he's committed to moving towards a market-based system. And there has been movement, but it's not as fast as we want," Obama said.

"What I've said to President Hu, and I firmly believe this, is not only will US businesses be able to export more to China if we have a market-based currency, but it will also be good for China and President Hu's agenda of expanding domestic demand, because if the RMB is worth more, that means they can buy more products and services, and that will contribute to China having greater purchasing power and a higher standard of living," he argued.

"So this is something that can be a win-win. President Hu's concerned, understandably, about how rapid this transition takes and the disruptions that may occur in its export sector; but I'm confident that it's the right thing to do, and my hope and expectation is, is that President Hu's resolve will lead to a fully market-based currency program that will allow more effective trade between our two countries," he said.

Later a joint statement said China would intensify efforts to expand domestic demand, to promote private investment in the service sector, and to give greater play to the fundamental role of the market in resource allocation.

"China will continue to promote RMB exchange rate reform and enhance RMB exchange rate flexibility, and promote the transformation of its economic development model," it said.

"The United States and China agree that currencies in the SDR basket should only be those that are heavily used in international trade and financial transactions. In that regard, the United States supports China's efforts over time to promote inclusion of the RMB in the SDR (Special Drawing Rights) basket," the joint statement said.

Ahead of the meeting, several US lawmakers had urged Obama to effectively take up the issue of alleged Chinese currency manipulation with HU.

Senators Charles Schumer, Debbie Stabenow and Bob Casey, alleged that the Chinese currency manipulation is like a "boot on the throat of US economic recovery" and announced their decision to introduce legislation "vigorously addresses" such alleged currency misalignments that unfairly and negatively impact US trade.

"China's policy of currency manipulation forces Michigan companies into unfair competition, with Chinese goods priced as much as 40 per cent lower because of their undervalued currency," Schumer said.

"This legislation will require the US government to get tough on China's unfair trade practices that are hurting our economy and costing us jobs," he said.

Also Senators Sherrod Brown and Olympia Snowe, wrote a letter to Treasury Secretary Timothy Geithner announcing their intention to introduce a legislation to address China’s unlawful practice of currency manipulation.

"China's actions to subsidize its exports through currency manipulation pose both immediate and long-term challenges to American manufacturers and workers still recovering from the economic recession," they said.