All this back-and-forth on whether or not China's currency, the Renminbi, or Yuan (RMB) is being manipulated or not really starts to beg the question of what currency manipulation actually means. In a world of fiat currencies, it doesn't mean very much.
China is well aware that in order to defend the value of the RMB against the dollar and other major currencies, it must maintain a foreign exchange reserve, mostly composed of dollars, since the dollar is the reserve currency of the world. However, with China's foreign exchange reserve at around $2 tril, it is impossible for currency speculators to attack the RMB, as George Soros did with the British Pound back in 1992, when he broke the bank of England.
So China can credibly defend the RMB. But what is the intrinsic value of the RMB? Well, there is none. Fiat currencies do not have an intrinsic value, which is what makes their movements so unpredictable relative to each other. The charge that China is a currency manipulator is not only vacuous, but it serves no real purpose other than stirring up anti-China sentiment. Perhaps that is a useful tool for politicians who trade in fear and want to create a new enemy. It's good that the Obama Administration has not taken further steps down that path.
Footnote: Paul Krugman has written an interesting piece recently arguing that China's steps to move away from the US dollar are signs of weakness rather than strength.
