New Legislation Aims to Shed Light on China’s Currency Practices

On January 23, 2025, the United States received the China Exchange Rate Transparency Act of 2023, which now has 9 cosponsors.

Overview of the Legislation

This bill seeks to enhance the visibility of China’s exchange rate policies. It highlights the following key aspects:

Objective of the Legislation

The primary goal is to mandate the U.S. Executive Director at the International Monetary Fund (IMF) to promote better transparency in China’s exchange rate policies. This move follows concerns regarding China’s limited disclosure about its exchange rate strategies, making it difficult to evaluate how its actions might sway global market rates.

Key Findings

The legislation outlines several significant findings:

• The People’s Republic of China (PRC) is obligated under the IMF’s Articles of Agreement to ensure orderly exchange rate arrangements and to avoid manipulation.
• The U.S. Department of the Treasury indicates that China’s opacity complicates the understanding of its exchange rate management, especially concerning foreign exchange interventions.
• China’s practices are seen as unusual among significant global economies, meriting scrutiny from the U.S. Treasury.

Push for Greater Transparency

The bill directs the Secretary of the Treasury to instruct the U.S. Executive Director at the IMF to carry out several measures:

• Advocate for improved transparency from China regarding its exchange rate policies, including indirect interventions through its financial institutions or state-owned enterprises.
• Emphasize any notable differences between China’s exchange rate practices and those of other major currencies in IMF discussions.
• Prompt IMF members to evaluate China’s role as a responsible player in the global monetary system during governance reviews, particularly when reassessing China’s quota and voting share at the IMF.

Timeframe of the Bill’s Provisions

The provisions of this legislation will remain in place until 30 days after the U.S. Governor to the IMF reports that:

• China is significantly adhering to its commitments regarding orderly exchange rate practices.
• China’s exchange rate policies more closely resemble those of other major currencies utilized in Special Drawing Rights.

Moreover, the bill will automatically expire seven years after its enactment, irrespective of the aforementioned conditions.

Companies Affected

• AAPL (Apple Inc.): With significant manufacturing in China, any alterations in China’s exchange rate policies could impact Apple’s profits and pricing across various markets.
• TSLA (Tesla Inc.): Tesla’s activities in China, including sales and production, may be influenced by exchange rate changes that alter import and export costs.
• NKE (Nike Inc.): Nike relies heavily on China for sourcing its products, meaning that fluctuations in exchange rates can affect both production costs and retail pricing.

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