Tim Geithner has been very diplomatic in the past where the Chinese yuan is concerned. He remains a voice of reason as the rest of the world starts talking about "currency warfare."
Geithner dismisses the prospect of a trade war emerging from Congress's efforts to brand China's reluctance to let its yuan currency float freely as a form of illegal trade subsidy. And he flatly denies the possibility of "currency wars" ahead, as Brazilian monetary officials have already warned about.
In fact, Geithner argues that the yuan is already strengthening on its own at a rate fast enough to balance tensions between the U.S. and Chinese economies. The yuan edged up 1.7% against the dollar last month before Congress passed the trade bill. Afterward, the People's Bank of China formally guided the yuan lower before the long National Day holidays.
This has been theoretically positive for yuan ETFs like CYB (quote) and CNY (quote), but going forward, the effects of an outright trade dispute may prove difficult to calculate:
Geithner's level-headedness only demonstrates how far off the mark the rest of U.S. politics on China really are. However, his claims not to even know what "currency war" would entail are a little odd.
Countries from Brazil to Thailand are now aggressively intervening in the forex markets to guide their currencies lower, and there is talk that Japan will do so again soon. Still, the Brazilian real in particular is still rising, as the real ETF BZF (quote) theoretically indicates:
This "beggar your neighbor" tactic of effectively devaluing your currency in order to protect domestic industry from foreign competition is likely to become one of the big themes of next year. Countries with strong currencies are already seeing foreign capital flows unbalance their economies, while those with temporarily weakened exchange rates -- Germany, for example, or Russia -- have enjoyed robust exports.