June 16, 2016 / 1:22 PM / 4 years ago

Return to prior China yuan policy would reignite tension: U.S.

Chinese 100 yuan banknotes are seen in a counting machine while a clerk counts them at a branch of a commercial bank in Beijing, China, March 30, 2016. REUTERS/Kim Kyung-Hoon/File Photo - RTX2GB38

WASHINGTON (Reuters) - U.S. Treasury Secretary Jack Lew warned China on Thursday that any return to its policy of keeping the yuan’s exchange rate artificially low against the dollar would trigger a new round of tensions between the two countries.

“Any reversion to the foreign exchange policies and export-led growth model of the past, within the current context of weak global growth, would trigger a new round of tension between our two countries,” U.S. Treasury Secretary Jack Lew said in remarks to the American Enterprise Institute.

Lew said the U.S.-China bilateral relationship has “come a long way on exchange rate issues” in recent years.

Instead of intervening in foreign exchange markets to weaken the yuan, also known as the renminbi, Beijing has spent foreign exchange reserves over the past year to support its currency, he added.

Lew said China still has work to do achieve an orderly transition to a market-determined exchange rate, and that Chinese officials committed at meetings in Beijing last week to continue reforms that allow for the yuan to rise and fall in response to market forces.

“China must demonstrate in its actions, not just its words, its commitment to that two-way flexibility,” Lew said. “It is one thing for China to allow the renminbi to weaken when there are market pressures for it to depreciate. The real proof of China’s commitment will be in its willingness to allow the renminbi to strengthen when appreciation pressures re-emerge.”

Reporting by David Lawder; Editing by Susan Heavey and Paul Simao

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