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Geithner Signals China Causing Global Currency Interventions

U.S. Treasury Secretary Timothy F. Geithner blamed China’s policy of limiting gains in the yuan for contributing to a round of capital controls and currency-market interventions by emerging economies.

“What’s happening is, as China holds its currency down, their currencies are moving up and they’re having to work very hard to make sure they’re not at an unfair disadvantage with China,” Geithner said in an interview with “Charlie Rose” scheduled to air on PBS yesterday and Bloomberg Television today.

Countries from Brazil to South Korea and Thailand have sold their currencies in recent weeks to curb gains that threaten to impede export growth and slow their economies. South Korea, Taiwan, Brazil, Colombia and Russia are tightening rules on capital flows to limit swings in their currencies.

“This issue, which people like to frame as uniquely an American preoccupation, is really much more important to the rest of the world and is really a global problem as a whole,” the Treasury chief said.

Premier Wen Jiabao’s government has limited the yuan’s advance to less than 3 percent since abandoning a two-year peg against the dollar in June. By comparison, Thailand’s baht has climbed 15 percent in the past two years, Malaysia’s ringgit is up 13 percent, Brazil’s real has surged 28 percent and South Africa’s rand has appreciated 34 percent versus the dollar.

Non-deliverable yuan forwards traded at 6.4493 per dollar in Hong Kong as of 11:39 a.m. today, suggesting a gain of a about 3.3 percent in the next 12 months.

China’s Surplus

U.S. lawmakers have led criticism that China’s policy provides an unfair trade advantage for its goods on the global market. China, the world’s largest exporter, today reported a $16.9 billion September trade surplus, capping the biggest quarterly excess of exports over imports since 2008.

While China’s currency is “substantially undervalued,” Geithner said there’s no risk of a global “currency war.” He said China has let its currency rise at a “pretty significant rate” in the past six weeks and will probably allow it to appreciate more over a longer period of time.

“This is going to be a gradual process, and what matters to us is that they continue to let their currency rise to reflect those market forces,” he said. “ China takes a long view of these things.”

Thai Restrictions

Thailand yesterday decided to remove a tax exemption for foreigners on income from domestic bonds, a move “in the right direction,” Central Bank Governor Prasarn Trairatvorakul said.

“This problem is a global problem that happens in many countries, and what we are trying to do now is reduce the impact as much as we can,” Prasarn told reporters in Bangkok late yesterday. “We also try to manage the foreign-exchange rate under a managed float system and make it efficient to help reduce the impact on businesses.”

Prasarn said the central bank is studying measures adopted by other countries to control capital flows.

Earlier this month, Brazil doubled its foreign inflow tax on fixed-income investments to 4 percent, as the government tried to temper a four-month rally in the real.

In June, South Korea unveiled tighter rules on currency derivatives to reduce volatility in capital flows and trading of the won.

As talks among officials from the Group of 20 nations began in Washington last week, Geithner warned of a “damaging dynamic” of competitive currency weakening that could limit global growth and said “more and more countries face stronger pressure to lean against the market forces pushing up the value of their currencies.”

In yesterday’s comments, he signaled that China needs to have some “independence” to set policy that makes sense for the country’s economy.

“If they keep the currency really low and undervalued, it’s really working against that basic objective of development. So, they’ve got a long view,” he said. “I’m very confident over time that this is going to happen. We just want to make sure it’s happening at a gradual but still significant rate.”

To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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