Bloomberg News

Lamy Urges Rational WTO Talk About Impact of Currencies on Trade

March 27, 2012

World Trade Organization Director- General Pascal Lamy urged governments examining how fluctuating currencies affect trade to have a “rational, fact-based discussion” on what he called a “highly sensitive subject.”

Lamy made the remarks as governments, international groups, academics and the private sector gathered in Geneva today for a meeting examining exchange-rate misalignments and their impact on trade. The two-day symposium was organized at the request of Brazil, which along with the U.S. and Europe says China keeps the yuan undervalued to boost exports and lower unemployment.

“I appreciate the uncertainty associated with some erratic movements of exchange rates can be not only a source of frustration, but also of asymmetric costs, which can distort international competition,” Lamy said. “This seminar is to examine the subject in a rational way, and avoid finger-pointing and frustration, which can only influence ill-designed trade- policy responses.”

Measures to underpin growth through low interest rates and higher liquidity have driven investors to seek higher returns in emerging markets such as Brazil, driving up the value of their currencies. Brazilian President Dilma Rousseff pledged earlier this month to take all necessary steps to shield Latin America’s biggest economy from what she dubbed a “monetary tsunami” unleashed by rich nations seeking to devalue their currencies.

U.S. Trade Gap

A faster increase in the yuan’s value would cut the U.S. trade deficit with China in half by the end of 2014, according to a Bloomberg Government Study. The trade gap with China, which widened to $295 billion last year, is the largest the U.S. has ever had with any country.

Chinese President Hu Jintao told President Barack Obama yesterday that while even a “large” appreciation of the yuan won’t solve the U.S. trade deficit and jobless rate -- now at 8.3 percent -- China will allow a more flexible exchange rate by letting “the market play a greater role,” according to a statement on the Foreign Ministry’s website.

The People’s Bank of China set the yuan’s reference rate at 6.2840 per dollar today, the strongest level since the nation ended a dollar peg in July 2005 and 0.48 percent higher than yesterday’s closing price of 6.3140. The currency is allowed to move as much as 0.5 percent on either side of the fixing.

U.S. Senator Max Baucus, a Montana Democrat who leads the Finance Committee, and Republican Representative Dave Camp of Michigan, chairman of the House Ways and Means Committee, said in a Jan. 31 letter to Treasury Secretary Timothy F. Geithner and U.S. Trade Representative Ron Kirk that the WTO seminar should be used to “address distortive currency practices.”

To contact the reporter on this story: Jennifer M. Freedman in Geneva at jfreedman@bloomberg.net

To contact the editor responsible for this story:


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