US-China standoff on yuan likely
The United States will keep up its push for flexible exchange rates at a Group of Seven finance ministers’ meeting on Saturday despite signs Europe and Japan may be retreating from the fray.
Nor does China appear willing to buckle to criticism of its currency regime, which fixes the yuan at about 8.3 to the US dollar, although Chinese officials met with G7 deputy finance ministers late on Friday in Dubai to talk about foreign exchange systems and their respective economies.
The three-hour meeting in Dubai, the first of its kind, was “constructive and meaningful,” an official from the Japanese Ministry of Finance said early on Saturday, adding that officials agreed to continue informal meetings in future.
US Treasury Secretary John Snow, the most vocal proponent of floating exchange rates, told reporters he wanted the final communique from Saturday’s G7 meeting to reflect his belief that no country should fix, or peg, its currency’s value.
Flexible rates
“We’ve had a consistent message on currencies, whether in Japan or China or Phuket or at all the G7 meetings,” Snow said on Friday.
“We think the world trading system works best under a regime of market-based exchange rates and we’re going to continue to push for flexible, market-based exchange rates.”
His comments came as European policymakers warned it was risky to bully China and said the US had big problems of its own with sky-high budget and trade deficits.
|
“We’re going to continue to push for flexible, market-based exchange rates” John Snow, |
Currencies should be allowed to float freely with markets determining their relative values, Snow said, declining to say if any specific country was ruffling the US’ feathers.
A powerful US business lobby has turned up the heat on an election-bound Bush administration, filing a formal trade complaint this week in the latest high-pressure step to make the White House lean on China to let the yuan rise.
Manufacturers complain the low yuan, pegged since the mid-1990s in a tight band against the dollar, makes it tough to compete with Chinese goods.
Some of President George Bush’s own economic advisers – as lofty as Glenn Hubbard, then the chairman of the White House Council of Economic Advisers – dubbed this bad economics and said a sudden yuan shift could trigger a China banking crisis.