RPT-UPDATE 1-China yuan a subsidy, needs to rise -Bernanke

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WASHINGTON, July 21 (Reuters) - U.S. Federal Reserve Chairman Ben Bernanke on Wednesday said China’s currency policy effectively subsidizes that country’s exports, giving fresh ammunition to China’s critics in Congress.

Bernanke also said it was in China’s best interest to further raise the value of its currency, known as either the renminbi or yuan.

“We would like to see them move considerably further so that it would both create a level playing field and also from the perspective of China, to give them a balanced domestic economy and more independence to their monetary policy.”

But he made made clear that he thought congressional action was not the best way to get China to act.

“I hope Congress will think very carefully before taking any strong action,” Bernanke said.

China recently loosened its yuan from a nearly two-year-old peg to the dollar, but it has risen only slightly since.

Bernanke’s statements at a Senate Banking Committee hearing came as a number of lawmakers are pushing for legislation aimed at forcing China to act more quickly.

Under questioning by one of those lawmakers, Senator Sherrod Brown, Bernanke answered “yes” when asked if he stood by a statement he made several years ago calling China’s exchange-rate policy an effective subsidy.

When pressed how much China’s yuan was undervalued, Bernanke said: “The numbers that you see in the literature range between the 10 and 30 percent range.”

“Broadly speaking, yes,” that means China’s exports to the United States are underpriced by that amount, Bernanke said in response to another Brown query.

However, he cautioned against drawing any connection between the U.S. trade deficit with China and job losses.

“There is not much correlation over a longer period of time between overall employment or unemployment and our current account deficit,” he said.

Brown and other senators also have been urging the U.S. Commerce Department to formally investigate whether China’s exchange-rate policy is a subsidy under U.S. trade law.

That would let companies request countervailing duties to offset the subsidy effect of the undervalued exchange rate.

The Commerce Department has been mulling for months whether it has the legal grounds to launch such a probe in two cases involving imports of paper and aluminum products from China. (Editing by Jan Paschal)