Obama Says Dollar Depends on Economy as G-20 Renews Fed Dispute
U.S. President Barack Obama
Ted Aljibe/AFP/Getty Images
U.S. President Barack Obama waves from his car after arriving in Seoul on the eve of the G20 Summit.
U.S. President Barack Obama waves from his car after arriving in Seoul on the eve of the G20 Summit. Photographer: Ted Aljibe/AFP/Getty Images
Nov. 11 (Bloomberg) -- Nick Bennenbroek, head of currency strategy at Wells Fargo & Co, talks with Bloomberg's Mark Crumpton about the outlook for currencies and the G-20 talks in Seoul. Bennenbroek says the U.S. dollar still has "a little bit further to fall." (Source: Bloomberg)
President Barack Obama said the strength of the dollar rests on sustaining the U.S. expansion as Group of 20 officials remain divided over whether the Federal Reserve is helping or harming the world economy.
Obama joins his G-20 counterparts at a summit in Seoul today, defending America’s economic policy by arguing growth in his country is the “most important contribution” the U.S. can make to the global recovery and that its “fundamental strength” will ultimately determine the dollar’s value.
His comments, contained in a Nov. 9 letter to fellow leaders, are the latest attempt to blunt criticism from other nations that last week’s decision by the Fed’s policy makers to buy $600 billion in assets risks undermining their economies by weakening the dollar and flooding emerging markets with capital.
That argument was made again yesterday by Brazilian Finance Minister Guido Mantega, who told reporters that the G-20 may discuss diluting the dollar’s role as a reserve currency to lessen its power in global markets. U.K. Chancellor of the Exchequer George Osborne rebutted that thought in a Bloomberg interview and pointed out that “it’s in the interest of everyone” that U.S. domestic demand rebounds and that the Fed is trying to deliver that.
G-20 Struggle
Such differences suggest the G-20 will struggle to unite over how to narrow imbalances in the world economy after its reliance on excess U.S. demand and Chinese savings helped spark the worst credit crisis since the Great Depression. A U.S. proposal to set guidelines for current-account deficits and surpluses has already run into opposition from export powerhouses China, Germany and Japan.
Kim Yoon Kyung, a spokesman for South Korea’s G-20 preparation committee, said yesterday in a press briefing that discussions between officials over currencies had been contentious and there was no agreement over what the leaders would say in their post-summit statement.
“We had to open the door because the debate was so animated and the room was getting hot,” he said.
The talks are infected by suspicion that members are each pursuing independent strategies to boost growth through weaker currencies and leaving the legwork to strengthen and rebalance the overall world economy to others.
As the U.S. lobbies China to let the yuan appreciate faster, its message is being weakened by the accusation that the Fed’s easier monetary policy is hurting the dollar. Caught in the middle are emerging markets with floating currencies, which are embracing capital controls or intervening to stay competitive.
Yuan Climbed
The yuan yesterday climbed to the strongest level against the dollar since 1993 on speculation China will permit faster appreciation before the G-20 talks. Its central bank yesterday also raised lenders’ reserve requirements as cash from October’s larger-than-forecast $27.1 billion trade surplus threatened to add to the risk of asset bubbles and inflation.
In his letter, Obama sought to share the responsibility for underpinning the international economy by urging countries “that have previously relied on exports to offset weaknesses in their own demand.” America’s own exports climbed to the highest level in two years in September, according to data released yesterday by the Commerce Department.
“When all nations do their part -- emerging no less than advanced, surplus no less than deficit -- we all benefit from higher growth,” Obama said.
Geithner Also Pushed
Acknowledging a two-speed global recovery, U.S. Treasury Secretary Timothy F. Geithner pushed for cooperation with colleagues from Australia and Singapore in an opinion piece yesterday on the Wall Street Journal’s website.
“The challenges facing us now are those of working for the common good in a world of widely differing economic conditions,” they wrote. On the eve of the G-20 summit, “the world faces two very different transitions to stable growth.”
Others are primed for robust disagreement. Brazil’s Mantega, who ignited tensions in September by saying a “currency war” was underway, said in Seoul yesterday that quantitative easing is a problem as the U.S. cash leaks abroad and risks inflating asset bubbles. He said the G-20 may discuss reducing the dollar’s role in favor of a basket that could include the real and yuan.
“The U.S. economy used to reign absolute, it was the strongest economy in the world and stood out from the others,” Mantega told reporters. “Today that is no longer the case.”
The U.K.’s Osborne said he wanted to offer “the other side of the argument” after a week in which the U.S. central bank was criticized by officials from Germany to China.
Concerns ‘Overstated’
World Bank President Robert Zoellick also weighed in and told Bloomberg Television that “some of the concerns have been overstated” about Fed policy. Emerging markets, with superior growth rates, would be a magnet for capital regardless of what the Fed was doing, he said yesterday.
Bank of England Governor Mervyn King said in London that comments in recent weeks had been a distraction from the key debate and that the world economy faces a “lose-lose” situation if the G-20 fails to make progress on reducing gaps in global trade.
“There needs to be a genuine recognition that there is a collective interest in the path along which the current-account imbalances unwind,” King said. “Unless we recognize that, then we will face a situation where more and more countries will resort to policy instruments that will be damaging to everyone.”
King said he was “absolutely delighted” by President Nicolas Sarkozy’s call to study ways of reordering the international monetary system when France takes the helm of the G-20 next year. In an interview in Paris that will be broadcast on Bloomberg Television’s “On the Move” with Francine Lacqua, French Finance Minister Christine Lagarde said she expected “many proposals” to be made.
Zoellick Clarified
The World Bank’s Zoellick also clarified an opinion piece he wrote in the Financial Times earlier in the week.
Zoellick said he was not advocating a return of a gold standard but he added that the metal’s rise to a record $1,424.30 an ounce this week reflected a lack of confidence in policy making and suggested a new monetary framework was required.
“You’re moving to what I call a Bretton Woods III system, where you have key roles for the dollar, the euro, the yen, the pound, and over time, the renminbi,” he told Bloomberg Television.
To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net Julianna Goldman in Seoul at jgoldman6@bloomberg.net
To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net
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