After a two-year hiatus, renminbi politics is back. On April 15, the US Treasury Department will release its semi-annual report on international currency regimes, and Congressional pressure is mounting for the Treasury to label China a “currency manipulator” – a term one former Treasury official calls “the Scarlet M”.
The renminbi's undervaluation is also likely to be a hot topic at the next US-China Strategic and Economic Dialogue in May, and at the upcoming G20 summit in Toronto in June. It is not just the Americans who are upset: virtually every member of the G20, as well as several of China's south-east Asian neighbours, has told China (either publicly or privately) that the renminbi ought to rise.
Is this the beginning of a currency war that could broaden into a trade war? The risk is clearly higher than it was a few months ago, but the odds still favour a peaceful resolution. US political calculus suggests that Treasury is unlikely to apply the “Scarlet M”.