The Obama administration is increasing pressure on China to move more quickly with allowing its currency to rise in value against the dollar.
A senior Treasury Department official told reporters Wednesday the currency issue would be a major topic at weekend meetings in South Korea of finance officials from the Group of 20 major economies.
"When large economies with undervalued exchange rates act to keep their currencies from appreciating, it compels other countries to do the same," the official said. "It is bad for the system, bad for all of us."
The official spoke under ground rules that did not permit identification by name in advance of the G-20 meetings.
The administration wants the Chinese currency to appreciate to make U.S. products more competitive overseas and boost U.S. manufacturing jobs.
Treasury Secretary Timothy Geithner and other U.S. officials have been increasing pressure in recent weeks in advance of Nov. 2 congressional elections. The weak economy and high unemployment have been major issues on voters' minds.
Geithner and Federal Reserve Chairman Ben Bernanke will attend meetings Friday and Saturday in South Korea. The group includes traditional economic powers such as the United States, Germany and Japan and fast-growing economies such as China and India.
The talks among the finance ministers and central bank presidents will help set the agenda for a Nov. 11-12 summit of G-20 leaders. President Barack Obama and the other heads of state will attend the summit.
"Advancing the pace and effectiveness of global rebalancing will be the dominant priority going into these meetings," the Treasury official said Wednesday.
The trade gap with China is the largest that the United States runs with any country. U.S. manufacturers contend that a major reason for that is the Chinese currency is undervalued by as much as 40 percent. That makes Chinese goods cheaper for U.S. consumers, and U.S. products more expensive in China.
China's currency has been tightly linked to the dollar. In June, before a G-20 summit in Toronto, China announced that it would allow more flexibility to let the currency rise. However, since that time, it has risen by less than 3 percent.
Last Friday, the administration delayed issuing a report required by Congress that notes which countries are manipulating their currencies. Instead, officials praised the recent appreciation of the yuan but said it needed to continue. They said the currency report would not be issued until after the G-20 talks.
On Wednesday the Treasury official said the G-20 discussions would examine ways to make progress in reducing trade imbalances. But the official refused to say whether the United States would support inclusion of a specific limit _ such as 4 percent of a country's total economy for deficits and surpluses.