April 19 (Bloomberg) -- U.S. Treasury Secretary Timothy F. Geithner said China’s decision to widen the yuan’s trading band against the dollar reflects changes that are “very significant and very promising.”
China is showing a commitment “to this broad change in growth strategy, towards a growth strategy less dependent on external demand,” Geithner said yesterday during an appearance at the Brookings Institution in Washington. “Obviously, they’ve got a long way to go in that process, including on the exchange rate.”
China said April 14 it will increase the yuan’s band to 1 percent from 0.5 percent, the first widening since 2007. Regulators had raised the quotas for foreigners to buy stocks and bonds to $80 billion from $30 billion on April 3.
The yuan declined 0.02 percent yesterday to close at 6.3028 per dollar in Shanghai, according to the China Foreign Exchange Trade System. It fell as much as 0.12 percent earlier. The yuan is almost unchanged since the People’s Bank of China widened the band.
“I think the cumulative effect of what China has done on the exchange rate side, on the external side, is very significant and very promising,” Geithner said.
On Europe, he said the region’s governments have “put in place a stronger set of tools for managing this crisis.”
Europe needs to avoid the risk of “a prolonged period of economic disappointment and weakness on the growth side,” he said.
Group of 20
Geithner was speaking before meetings of Group of 20 finance ministers and central bank governors, the International Monetary Fund and World Bank starting today in Washington.
“Since economic weakness produces in the short term larger deficits than you’d hope for, you don’t want to have to offset that increase in the deficits with immediate, difficult cuts in spending or taxes right away,” he said. “The best way to do it is to respond to those with some gradually phased-in, medium-term plans for reform.
‘‘If you try to do it all up front, then the risk is, again, you’re undermining the prospects for some stability and growth,’’ he said.
Europe’s two-year debt crisis reignited this month as Italian borrowing costs rose and Spain’s 10-year bond yield approached the level at which Greece, Ireland and Portugal required bailouts. The IMF, which is seeking to boost its lending capacity from around $380 billion to shield the global economy from the European crisis, garnered fresh pledges of cash from Japan to Denmark.
Geithner called for ‘‘a clean and unequivocal commitment by the central bank and the broader fiscal authorities in Europe that they’re going to provide the financial commitments necessary for those governments to be able to borrow at sustainable interest rates.”
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