By Cheyenne Hopkins and Ian Katz - 2012-05-25T13:37:02Z

The U.S. Treasury Department declined to name China a currency manipulator while saying the yuan remains “significantly undervalued.”

In its semi-annual report to Congress on exchange-rate policies, the Treasury said today that it will continue to “closely monitor” the pace of yuan appreciation and press for changes that yield greater exchange-rate flexibility.

“It is in China’s interest to allow the exchange rate to continue to appreciate, both against the dollar and against the currencies of its other major trading partners,” the Treasury said in the report.

The Treasury said the yuan has appreciated 40 percent against the dollar after inflation since China initiated currency reform in July 2005. This year through May 15 the Chinese currency was “virtually flat” against the dollar.

The Obama administration’s relationship with China is yielding “tangible, significant gains that will benefit the U.S.,” Lael Brainard, the Treasury’s undersecretary for international affairs, said May 16.

Brainard said agreements at the U.S-China talks in Beijing on May 3-4 included a pledge by China to reduce tariffs on consumer goods imports by the end of the year.

China’s decision last month to widen the yuan’s trading band will help “promote rebalancing and financial reform” if it’s “implemented in a way that enables the exchange rate to reflect fully market forces,” Brainard said.

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