G-20 Calls on Asia For More Currency Flexibility
The Group of 20 nations called for “more flexibility” in the currencies of emerging Asian nations after European and Canadian officials stepped up pressure on China to reduce its trade surplus with a stronger yuan.
The G-20 agreed on the need for “greater exchange-rate flexibility in a number of surplus countries” in “emerging Asia,” according to a statement released after two days of talks in Kleinmond, South Africa. The G-20 groups the largest developed countries, including the U.S., France and Canada, with emerging economies such as China and India.
G-7 officials have strengthened their rhetoric on China as concern mounts the country isn’t shouldering enough of the dollar’s slide, garnering an unfair advantage for its exporters. French Finance Minister Christine Lagarde said today the yuan is “causing tensions” and Canada’s Jim Flaherty said yesterday China and other Asian countries “need to do more.”
The G-20 didn’t go as far as the G-7’s October statement, which singled out China and the need for an “accelerated appreciation” of the yuan. Today’s communiqué made no reference to the dollar’s decline.
U.S. Treasury Secretary Henry Paulson, European Central Bank President Jean-Claude Trichet and Chinese central bank governor Zhou Xiaochuan were among the delegates at this weekend’s meeting in South Africa. Trichet will hold a press conference in Cape Town tomorrow after chairing a separate meeting of G-10 central bankers.
‘Global Responsibilities’
Trichet said Nov. 8 China must meet its “global responsibilities.” The euro and the Canadian dollar have soared to records against the U.S. currency as China restrains the yuan’s exchange rate. While China has allowed its currency to rise about 5 percent against the dollar this year, it has fallen against the euro by about the same amount.
China’s trade surplus surged 69 percent in the first nine months of 2007 to $185.7 billion, fueling inflation and adding ammunition to calls by U.S. lawmakers for the yuan to strengthen faster.
“Greater balance in exchange rates provides us with stability,” South African Finance Minister Trevor Manuel said at a press conference today.
The U.S. currency has dropped about 11 percent so far this year, based on the Federal Reserve’s U.S. Trade-Weighted Major Currency Index. It fell this month to its weakest against the euro since the European currency’s debut in 1999, to a 26-year low versus the pound and the lowest against Canada’s dollar since it was floated in 1950.
‘Okay For Now’
Zhou gave no signs his country plans to cave into pressure on the yuan any time soon. While Zhou said in Cape Town today China would consider widening its trading band “if necessary,” he gave no timeframe and said he’s comfortable with current settings.
“The floating band is okay for now,” Zhou told reporters. “If necessary, we can consider to expand that. We’re going to gradually enlarge the exchange flexibility.”
The G-20 also said that “rising energy and food prices will remain an important source of price pressures” and central banks “will need to assess carefully the inflation outlook in light of both tight conditions in commodity markets and the downside risks to growth.”
Policy makers around the world are trying to curb inflation just as fallout from the biggest U.S. housing slump in 16 years spreads through financial markets and a weaker dollar threatens to hurt growth.
Fed Rate Cuts
While the U.S. Federal Reserve has cut interest rates twice since September to shore up U.S. expansion, policy makers in India, China and the 13 euro nations say they are worried about accelerating inflation.
The price of oil has surged 58 percent in the past year and wheat prices have increased 60 percent in the same period. European inflation accelerated to the fastest pace in two years last month and Chinese inflation matched the quickest pace in a decade.
The statement said G-20 nations agreed that easing lopsided trade and investment flows is a “shared responsibility.” While Asian nations need to maker their currencies more flexible, the U.S. needs to boost saving, European governments must take measures to spur economic growth and Japan must undertake “further structural reforms.”
The G-20 comprises Argentina, Japan, Australia, Korea, Brazil, Mexico, Canada, Russia, China, Saudi Arabia, France, South Africa, Germany, Turkey, India, United Kingdom, Indonesia, United States, Italy, European Union.
Tags: central-bank, investment