Currency clash
October 10, 2010
The world's top finance officials wrap up three days of talks Sunday after failing to reach a consensus on measures to head off what some see as a looming currency conflict.
The IMF steering committee, which has been struggling to address frictions among key economies, including China, the European Union and the United States, has said it will continue its efforts to study ways to resolve global currency imbalances.
Tensions have been mounting in the last few months between the West and Beijing over the perceived undervaluation of the Chinese currency, the yuan.
"While the international monetary system has proved resilient, tensions and vulnerabilities remain as a result of widening global imbalances, continued volatile capital flows, exchange rate movements and issues related to the supply and accumulation of official reserves," the IMF panel said in a statement after its semi-annual meeting on Saturday in Washington.
The statement by the monetary and finance committee, the policy arm of the IMF, stopped short, however, of any specific call on China or other nations to change policies of using undervalued currencies and the accumulation of reserves to boost exports.
US warns of currency distortions
US Treasury Secretary Timothy Geithner had said earlier that the IMF "must strengthen its surveillance of exchange rate policies and reserve accumulation practices."
"Excess reserve accumulation on a global scale is leading to serious distortions in the international monetary and financial system," Geithner added.
European Central Bank president Jean-Claude Trichet was, at least publicly, more upbeat and said that he saw cause for optimism.
"I have full confidence that the international community will find the appropriate ways to cooperate," he said at the close of the talks. "We are very, very hostile to any so-called currency wars."
He said the meeting's participants understood they had a "shared responsibility" to avoid excessive exchange rate volatility or imbalances.
China bows to pressure
China's top central banker, Zhou Xiaochuan, rejected demands for a quick yuan revaluation, declaring that Beijing would reform gradually, rather than engage in any kind of "shock therapy." The yuan would move slowly toward an "equilibrium level," he added.
Zhou's standpoint has supporters among many economists who argue that any sudden and sharp revaluation of the yuan would put a lot of Chinese companies in the export sector out of business, triggering massive job losses and even social unrest.
China appeared to bow to international pressure for a stronger currency in June, promising to let the yuan trade more freely against the dollar.
But, since then, the yuan, also known as the renminbi, has gained only two percent against the greenback, angering US and European policymakers who say the yuan is undervalued by as much as 40 percent.
Author: Gregg Benzow (dpa/AFP/Reuters)
Editor: Sean Sinico