Bloomberg News

G-20 Sets Aside China Currency Concerns as Debt Crisis Dominates

October 15, 2011

(See GMEET <GO> for more on the G-20 meeting.)

Oct. 16 (Bloomberg) -- The world’s leading economies set aside concerns about China’s currency for now as Europe’s debt crisis took centre stage at a Group of 20 meeting in Paris.

G-20 finance ministers and central bankers refrained from ratcheting up their language on exchange rates in a statement yesterday, sticking to the line that they should be “market determined.” Chinese deputy finance minister Zhu Guangyao welcomed the statement, saying in an interview that its description of the currency issue was “comprehensive and balanced.”

China, which has been criticized for not allowing the yuan to appreciate more, said the current priority is fixing Europe’s debt crisis. The U.S. on Oct. 14 postponed a report on the exchange-rate policies of its trading partners, including China, until after global meetings scheduled for this month and next.

“We reiterate that excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability,” the G-20 statement said, repeating a mantra last expressed on Sept. 23.

Japan’s concerns about excessive currency movements were reflected in the G-20 statement, Japanese Finance Minister Jun Azumi said yesterday. Bank of Japan Governor Masaaki Shirakawa said on Oct. 14 that global uncertainties are driving up the yen and urged European nations to tackle their debt problems swiftly.

Geithner’s Stance

Treasury Secretary Timothy F. Geithner has been pushing China to allow its currency to strengthen, saying that would help support global growth, while avoiding actions that could cause friction with the world’s No. 2 economy and the second- largest U.S. trade partner.

“It’s in the interest of the world economy for China to let the exchange rate appreciate more rapidly and more broadly,” Geithner said in Paris yesterday.

A G-20 official, speaking on condition of anonymity in line with his government’s policy, said China had given no signal at the meeting that it’s prepared to allow the yuan to appreciate more quickly.

The yuan has risen 10 percent against the dollar, adjusted for inflation, since mid-2010. Premier Wen Jiabao, after paying a visit to exporters and manufacturers in the southern Guangdong province, said China will keep the yuan “basically stable to avoid hurting the nation’s foreign-trade companies excessively,” China National Radio reported yesterday.

Chinese Exports

China’s exports rose the least in seven months in September and the customs bureau warned of “severe” challenges as the global economic outlook dims.

China’s central bank limits conversion of the yuan onshore for investment purposes and restricts daily movements to 0.5 percent from its daily fixing. Intervention by buying and selling the currency has contributed to the buildup of $3.2 trillion of foreign-exchange reserves, the world’s largest. Chinese investors hold $1.2 trillion of U.S. Treasuries.

G-20 nations may step up pressure on China to allow more yuan appreciation if Europe manages to resolve its debt crisis. European Union leaders are aiming to present a comprehensive plan at a summit on Oct. 23.

China’s reluctance to allow more flexibility in its currency has been a “persistent thorn,” Canadian Finance Minister Jim Flaherty said in an interview with Bloomberg Television, adding that a move in this direction would be in the Asian country’s interests.

“There needs to be a recognition that flexibility of the currency also benefits China,” Flaherty said. “Inflexible currencies endanger free trade, ultimately, because they lead to protectionist sentiment.”

--Victoria Ruan with assistance from Toru Fujioka, Rainer Buergin and Cheyenne Hopkins in Paris. Editors: Matthew Brockett, Craig Stirling

To contact Bloomberg News staff on this story: Victoria Ruan in Paris at vruan1@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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