* Delay gives China diplomacy one more chance
* G20 under growing pressure to deliver more than rhetoric
* Will Treasury delay trigger congressional action?
WASHINGTON (Reuters) - The U.S. Treasury's currency
report delay suggests Washington wants to give diplomacy
another chance to convince China it is in everyone's interest
to speed up the yuan's rise.
By delaying the report until after a Group of 20 leaders
summit in Seoul next month, the United States can defuse some
political tension. However, it also puts the onus on the G20 to
deliver more than just rhetoric on foreign exchange rates.
Treasury Secretary Timothy Geithner probably won't be
winning many friends in Congress, where lawmakers from both
political parties back taking a tougher tack on Beijing.
G20 LOOMS LARGER
* Currencies were already front and center at G20 talks
after IMF meetings last weekend failed to ease tensions.
Forging consensus in such a diverse group will be hard.
* There does not seem to be broad support for a "Plaza
Accord" type of agreement on how best to realign exchange
rates. European officials have stuck to well-rehearsed
statements that excessive currency volatility is unwelcome.
* Geithner toughened his words somewhat last week, saying
markets should determine exchange rates.
TAKING OUT THE POLITICS
* Waiting until after the G20 meeting means the Obama
administration won't have to reveal its decision until after
Nov. 2 congressional elections.
* Although China's currency is not a hot-button issue for
voters, it is a source of frustration for unions and
manufacturing-heavy states which are typically Democratic
* But the delay could spur Congress to act on legislation
that would penalize China for keeping the yuan low. A bill that
would punish China for its currrency practices passed in the
House of Representatives last month and two Democratic senators
said on Friday Congress was prepared to move ahead with
* Geithner told lawmakers at a Sept. 16 hearing on China's
currency that he shared their frustration with Beijing's slow
progress in allowing the yuan to rise. The delay may harden
some lawmakers' view that Treasury is too soft on China. The
yuan has beeen the focal point of relations that frequently see
tensions over issues from Tibet and Taiwan to trade.
GREEN LIGHT TO SELL DOLLAR
* The delay does little to change the status quo for
investors who will be happy to continue selling dollars and
buying Treasuries in anticipation of the U.S. Federal Reserve
pumping more dollars in the economy.
* It also leaves China free to allow only gradual yuan
appreciation and puts upward pressure on the euro, yen and
Australian dollar, which as free-floating currencies tend to
absorb most of the dollar weakness.
* By managing its exchange rate, China has built up a
massive store of $2.6 trillion in currency reserves and is the
biggest holder of U.S. Treasury debt. Markets fear a move to
label it a manipulator could spark retaliation, with a
worst-case scenario involving China selling enough Treasury
debt to provoke a sudden spike in U.S. interest rates.
(writing by Emily Kaiser and Steven C. Johnson; Editing by
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