Geithner Seeks Yuan Gains, Says It's `Overwhelmingly' in China's Interest
U.S. Treasury Secretary Timothy F. Geithner said China needs to continue to allow its currency to gain, adding that the world’s second-largest economy is “very supportive” of the Group of 20 nations’ framework on reducing global imbalances.
Speaking at an event in New Delhi today, Geithner said it’s “overwhelmingly” in China’s interest to allow its currency to appreciate. At the same time, he acknowledged that China’s leaders are split on how to proceed.
“They’re in the midst of a constant debate,” Geithner said. “The balance between the forces in favor of moving more quickly and moving more slowly are constantly shifting.”
Geithner said China is in the early stages of reforms that will allow its currency to move in response to market forces and be more fully convertible. China has curbed the yuan’s rise to about 2 percent against the dollar since a June pledge to introduce more flexibility, arguing anything other than a gradual appreciation could cause social and economic disruption.
Geithner’s comments came as Chinese Vice Finance Minister Zhu Guangyao said the U.S. Federal Reserve’s Nov. 3 decision to pump $600 billion into the economy might “shock” emerging markets by flooding them with capital.
The first round of quantitative easing, as the Fed policy is termed, in 2009 was justified because the global economy lacked liquidity, Zhu told reporters in Beijing today. With a recovery now under way, new purchases of Treasuries to inject funds into the financial system may be destabilizing, he said.
Geithner said recent tensions over currency policies stem from a shift in global growth patterns. Emerging market nations are growing faster than the U.S., Europe and Japan, attracting investment and prompting different policy approaches.
Some emerging market countries are “leaning very aggressively” against market pressure to let their currency rise. This, in turn, is “unfair” to countries that permit appreciation, and adds inflation risk in nations that don’t allow their markets to adapt to economic conditions, he said.
The Treasury chief reiterated his call for the Group of 20 nations to sign on to “indicative guidelines” aimed at identifying when trade balances are out of whack. Big trade deficits or surpluses can’t be limited directly, and instead should be viewed as early warning signs of economic risk, he said.
Geithner said India is at the early stage of a period of prolonged gains in productivity and growth, and he praised the country’s “very careful, very pragmatic” strategy. He endorsed efforts to allow foreign investors more access as India develops its debt markets, such as a proposed infrastructure investment fund.
In the U.S., the recovery is gradually strengthening as the U.S. takes on a growth pattern that is “very encouraging” for the country’s economic future. The U.S. is on track to grow twice as fast as Europe or Japan, and economic conditions generally are strengthening, Geithner said.
Also today, a U.S. official told reporters that the European Union has no alternative to the joint action needed to solve sovereign debt woes facing some of its member countries. As a whole, the EU has plenty of financial savings and capacity to act, the official told reporters, speaking on condition of anonymity.
The official expressed confidence that the EU would be able to manage the issue. At the same time, Europe has seen an erosion of its progress in calming investors about the risks of investing in debt from cash-strapped countries like Ireland, Portugal and Spain, the official said.