U.S. Treasury Secretary Timothy Geithner said Saturday that the Group of 20 largest industrial and developing nations is gradually building consensus on an early-warning system to head off future crises and expressed confidence the group would complete the program.
He spoke after China agreed to allow international scrutiny of its much-criticized exchange-rate policy in the face of unified opposition from other G-20 members, including from emerging nations that previously backed Beijing.
"China's currency remains substantially undervalued, and its real effective exchange rate—the best measure to judge its currency against all of its trading partners—has not moved much in this latest period of exchange rate reform," Mr. Geithner said at the close of a G-20 conference in Paris.
Signs of a fragile, but recovering global economy have dispelled much of the fear that fueled G-20 cooperation during the financial crisis. Since then the Asian powerhouse has become increasingly isolated by its G-20 peers. Surging food and fuel prices and huge flows of money to developing economies have pushed the balance of power in favor of U.S. and European officials who have pressed China on the issue for years.
"This process will take time, but it will happen because all countries, particularly the emerging economies in the G-20, have a strong interest in reducing the risk that their future growth and financial stability is undermined by large global imbalances," Mr. Geithner said.
The treasury secretary reiterated his call for exchange rate norms, which will likely be a byproduct of the G-20 establishing an economic alarm system. The group agreed to include to take exchange rates into account in their indicators.
However, China did secure some concessions. Other G-20 members had wanted foreign reserves to be included as a warning signal but that didn't make the final list. The country has around $2.85 trillion in currency reserves, largely a consequence of keeping the lid on the yuan. China's need to reinvest reserves in foreign assets is widely acknowledged as a primary cause of the bubble in U.S. debt markets that led to the financial crisis.
Asked why the G-20 left out the reserves, Mr. Geithner said the issue wasn't critical at this stage. "There's a much broader sensitivity with how you think about the challenges with excessive reserves and it's going to take a little more time to think through those," he said.
Mr. Geithner also said the group needed stronger consensus on guidelines for how emerging economies can manage the surge of capital flows into and out of their economies. Investment—drawn by higher yields in developing nations than in rich countries—threatens to overheat many emerging-market economies.
The treasury secretary said the challenge was to reduce the risk that surging capital flows create asset bubbles and leave the financial system vulnerable to exchange rates.
"This requires carefully designed prudential measures in the financial sector, as a complement to the classic mix of monetary and fiscal restraint and flexibility in the nominal exchange rate," he said. Such measures could include higher reserve requirements for foreign investors and limits on borrowing by outside investors.
Source: http://online.wsj.com
He spoke after China agreed to allow international scrutiny of its much-criticized exchange-rate policy in the face of unified opposition from other G-20 members, including from emerging nations that previously backed Beijing.
"China's currency remains substantially undervalued, and its real effective exchange rate—the best measure to judge its currency against all of its trading partners—has not moved much in this latest period of exchange rate reform," Mr. Geithner said at the close of a G-20 conference in Paris.
Signs of a fragile, but recovering global economy have dispelled much of the fear that fueled G-20 cooperation during the financial crisis. Since then the Asian powerhouse has become increasingly isolated by its G-20 peers. Surging food and fuel prices and huge flows of money to developing economies have pushed the balance of power in favor of U.S. and European officials who have pressed China on the issue for years.
"This process will take time, but it will happen because all countries, particularly the emerging economies in the G-20, have a strong interest in reducing the risk that their future growth and financial stability is undermined by large global imbalances," Mr. Geithner said.
The treasury secretary reiterated his call for exchange rate norms, which will likely be a byproduct of the G-20 establishing an economic alarm system. The group agreed to include to take exchange rates into account in their indicators.
However, China did secure some concessions. Other G-20 members had wanted foreign reserves to be included as a warning signal but that didn't make the final list. The country has around $2.85 trillion in currency reserves, largely a consequence of keeping the lid on the yuan. China's need to reinvest reserves in foreign assets is widely acknowledged as a primary cause of the bubble in U.S. debt markets that led to the financial crisis.
Asked why the G-20 left out the reserves, Mr. Geithner said the issue wasn't critical at this stage. "There's a much broader sensitivity with how you think about the challenges with excessive reserves and it's going to take a little more time to think through those," he said.
Mr. Geithner also said the group needed stronger consensus on guidelines for how emerging economies can manage the surge of capital flows into and out of their economies. Investment—drawn by higher yields in developing nations than in rich countries—threatens to overheat many emerging-market economies.
The treasury secretary said the challenge was to reduce the risk that surging capital flows create asset bubbles and leave the financial system vulnerable to exchange rates.
"This requires carefully designed prudential measures in the financial sector, as a complement to the classic mix of monetary and fiscal restraint and flexibility in the nominal exchange rate," he said. Such measures could include higher reserve requirements for foreign investors and limits on borrowing by outside investors.
Source: http://online.wsj.com
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