The end of Europe’s longstanding indifference to the Renminbi

Is the renminbi’s exchange rate an important issue for Europe? For a long time, it seemed as though it was not. As recently as 2006–07, when Henry Paulson, secretary of the US Treasury, was calling the US-China economic relationship the most important in the world and no less than three congressional bills envisaged potential trade retaliation against an allegedly deliberate currency undervaluation, Europe was surprisingly silent. It apparently had no strong views on either the exchange rate regime or the valuation of the renminbi. Ministries of finance and the European Central Bank (ECB) investigated the issue and discussed it in contacts with Chinese counterparts, but it was not prominent on policymakers’ agendas and was hardly discussed publicly. When asked, officials either referred to the latest Group of Seven (G-7) communiqué or replied that the issue was best dealt with behind closed doors in discussions between ministers or among central bankers. Europe was apparently relying on the implicit assumption that, to it, the issue was second order, and in any case, its interests coincided with those of the United States. Therefore, Europe could rely on US activism for all practical purposes.