The US Treasury ruled Tuesday that China does not manipulate its currency, but said nevertheless that the renminbi remains undervalued.
In a twice-yearly finding to answer congressional critics of China's overwhelming bilateral trade advantage, the Treasury said Beijing did not meet the definition of a currency manipulator under US law, which could spark US trade sanctions.
The Treasury argued that China knows that an appreciating currency is in its own interest, and said the renminbi (RMB), also called the yuan, gained 9.3 percent against the dollar between June 2010 and November 2012.
Measuring the real effective exchange rate -- which weighs China's cost-competitiveness relative to its trade partners -- the Treasury said the renminbi gained 6.2 percent in 2011, and was flat this year, but was up 27 percent since mid-2005.
Nevertheless, it said, based on Beijing's huge stock of foreign reserves and its strong trade surplus, the renminbi's appreciation has been "insufficient."
Those and other factors "suggest that the real exchange rate of the RMB remains significantly undervalued and further appreciation of the RMB against the dollar and other major currencies is warranted."
After hitting a year low in July of around RMB 6.39 per dollar, the currency has steadily climbed in recent weeks to hit a fresh record high of RMB 6.22 per dollar on Monday.