China Pension Chief Proposes Dollar Trade Range to Cope With Fed's Easing
China’s pension-fund chief proposed setting a trading range for the dollar as officials in the fastest-growing major economy fault the U.S. for adopting policies without regard for the American currency’s global role.
The world needs a stable dollar, Dai Xianglong, chairman of China’s National Council for Social Security Fund and a former head of the nation’s central bank, said today at a forum in Beijing. He spoke two days before a Group of 20 summit aimed at addressing global imbalances in trade and investment flows.
Dai’s proposal follows charges by Chinese officials that the Federal Reserve’s plan to buy $600 billion of Treasuries risks inflating asset bubbles in emerging markets. While Treasury Secretary Timothy F. Geithner said Nov. 6 the U.S. takes its global responsibilities “very seriously,” Fed Chairman Ben S. Bernanke has said his focus must be on the American economy.
The idea “is unlikely to fly given that the U.S. would like to maintain the flexibility of its currrency and the ability to lower its value when it needs to boost exports or inflation, as is the case now,” said Dariusz Kowalczyk, a Hong Kong-based senior economist and strategist at Credit Agricole CIB. “Even a range won’t be acceptable to the U.S.”
The Dollar Index, which tracks the U.S. currency against six counterparts including the euro and the yen, has tumbled about 13 percent from a June high even after gains today and over the previous two days.
‘Piece of Advice’
“I have a piece of advice -- can we find a connecting point between the dollar being not just the U.S. local currency, but also being the main international reserve currency?” Dai said. “Say, set a floating range for the dollar exchange rate, a reasonable range, so that everybody can rest assured?”
Also today, the state run Xinhua News Agency said in a commentary that the Fed is “risking the fragile global recovery by following its own track for economic revival.” Issuance of the international reserve currency shouldn’t be decided by a single central bank, wrote journalists Liu Huan and Wang Jianhua.
The nation’s currency regulator said today that it would tighten controls on inflows of speculative capital.
Li Daokui, an academic adviser to China’s central bank, said it could be seen as “absurd” that the dollar remains a reserve currency after the financial crisis. He spoke today at a forum in Beijing.
Helping the World
In contrast with some Chinese criticism, President Barack Obama said yesterday that the Fed’s mandate is to help the U.S. economy expand, with American growth aiding the world as a whole.
Dai also said today that the U.S. should keep its fiscal deficit to a certain ratio of its gross domestic product. Chinese policy makers including Premier Wen Jiabao have expressed concern that the value of Treasuries may fall amid record American budget deficits. China is the largest overseas holder of U.S. government debt.
A suggestion by Geithner to set targets for current-account surpluses or deficits was rejected by Asian nations, and the U.S. Treasury chief refrained on Nov. 6 from pushing the idea. He said at a press conference in Kyoto, Japan after a meeting of Asia-Pacific Economic Cooperation forum counterparts that current accounts aren’t “amenable to limits or targets.”
As China’s central bank governor until late 2002, Dai advocated the benefits to China and Asia of the yuan’s peg to the greenback. That arrangement was scrapped in 2005 when the yuan was revalued. The nation effectively reinstated a fixed exchange rate from July 2008 to June this year to aid exporters and steer the nation through the global financial crisis.
Zhou Xiaochuan, who replaced Dai as governor and remains in that position, said Nov. 5 that while quantitative easing in the U.S. is understandable for domestic reasons, the currency’s local and global roles can conflict.
China’s top economic planning agency warned today that a weak dollar and excessive global liquidity are pushing up commodity prices, stoking “imported inflation.” Zhang Ping, the head of the National Development and Reform Commission said full-year inflation may be “slightly” higher than the government’s 3 percent target, in comments published on a state radio website.
Consumer prices rose 4 percent in October from a year earlier, the biggest gain in two years, according to the median estimate in a Bloomberg News survey of economists. That number will be announced on Nov. 11.
Record property-price increases this year have prompted a government crackdown on speculation, with Du Jinfu, a deputy governor of the central bank, telling a forum in Beijing today that the nation still faces asset-bubble risks.
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