China to Commit on Currency Flexibility at G-20, Treasury’s Brainard Says

China will make commitments on currency flexibility as part of a Group of 20 action plan that will call upon export-oriented economies to boost domestic consumption, said Lael Brainard, U.S. Treasury undersecretary for international affairs.

Brainard said China is “playing a quite constructive role” in conversations that will commit trade “surplus countries” to stepping up domestic consumption. Currency flexibility “will be part of the action plan” announced at the end of the summit, Brainard said at a briefing in Cannes, France.

G-20 leaders are meeting in Cannes to discuss Europe’s efforts to deal with its debt crisis and update their plans on rebalancing the global economy.

Chinese President Hu Jintao called for reform of the international monetary system to be advanced “in a steady manner,” according to the text of remarks he made to French President Nicolas Sarkozy at the G-20 meeting.

Measures should include changes to “expand the use of” the special drawing rights of the International Monetary Fund, “reform the SDR currency basket and build an international reserve currency system with stable value, rule-based issuance and manageable supply,” Hu said, according to the text distributed to reporters in Cannes.

The yuan advanced 0.09 percent to close at 6.3514 per dollar in Shanghai, according to the China Foreign Exchange Trade System.

Seeking Flexibility

A draft of the communique that will be released at the end of the two-day meeting singled out China as needing to allow more flexibility in its currency to help ease global trade and investment imbalances, according to an official from a G-20 nation, who spoke on condition of anonymity because discussions on the statement haven’t finished.

The official said the citation may not remain in the final version because of opposition from Chinese officials.

Any ratcheting up of pressure on the yuan’s gains might risk stoking tension as European officials seek China’s investment in an expanded rescue fund aimed at resolving the euro-region’s debt crisis. Chinese Deputy Finance Minister Zhu Guangyao last month welcomed a statement by G-20 finance chiefs that omitted reference to the yuan.

‘Balanced’ Communique

The Oct. 16 communique was “comprehensive and balanced,” Zhu said in an interview last month. The text said emerging markets with trade surpluses should continue to “move toward more market-determined exchange-rate systems and achieve greater exchange-rate flexibility to reflect economic fundamentals.”

Lawmakers in the U.S. are pressing the Obama administration to take a stronger stand on China’s currency. The U.S. Senate approved a bill last month that would let manufacturers seek duties on Chinese imports if they prove they were harmed by manipulation of the yuan. The U.S. contends China has kept its currency undervalued. President Barack Obama has pressed Chinese leaders to take steps to boost domestic consumption to address trade imbalances.

China’s state-owned companies don’t cause the nation’s trade surplus, so the proposed U.S. policy is “groundless,” Chinese Commerce Minister Chen Deming said at a briefing in Cannes. He also said China will support Europe in dealing with the crisis and import more from the euro zone.

To contact the reporters on this story: Rebecca Christie in Cannes, France at rchristie4@bloomberg.net Zijing Wu in Cannes, France at zwu17@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.