The U.S. will likely leverage many of the major economic issues at the upcoming conference of the Group of 20 largest economies as an opportunity to continue pressuring China on its currency policy.
The G-20 will tackle rebalancing the global economy and emerging-market concerns about volatile capital flows and commodity-price inflation as some of its top priorities when world financial leaders meet in Paris, France later this week.
In particular, Washington supports a proposal by the G-20 chairman, French President Nicolas Sarkozy, for the group to craft guidelines for how authorities manage the mountains of cash flowing between nations, a senior U.S. Treasury official said Tuesday.
"We need a better framework for addressing volatility in capital inflows," the official said.
China's policy of keeping a tight lid on the yuan, despite some moves toward liberalizing its currency, has become increasingly irksome to developing nations such as Brazil and South Korea. Low interest rates in the U.S. and Europe are fueling massive investment into emerging nations that promise higher cash yields, but the under-valued yuan is forcing other developing nations to bear the brunt of the adjustments given that their exchange rates are largely already floating at market rates.
While the U.S. believes there has been notable progress by Beijing to reform its currency policy, the official said Washington plans remain "intensely engaged" to ensure ongoing appreciation.
For many developing economies, the yuan hasn't appreciated at the same pace as it has with the dollar, however.
A raft of emerging-market economies are near overheating, and food and other commodity-price inflation is adding to their economic problems. For those with floating exchange rates, it's difficult to combat inflation without putting additional pressure on their currencies, which in some cases are overvalued, the official said.
That's why many governments in those countries have enacted a slew of capital controls, anathemas to investors who don't want any restrictions in their capital. The problem, along with searing inflation in food and other commodity prices, has provided another context for the G-20 to press Beijing to pick up the pace on appreciating its currency to market-determined levels, and allowing it to be freely tradable and convertible.
The U.S. itself encountered a barrage of criticism from emerging nations at the last meeting of world leaders in November for its loose monetary policy. Washington said then that the monetary stimulus was needed to fuel recovery of the world's biggest economy and the driver for much of the world's growth. With indications now that the recovery in the U.S. is gathering steam, there's some measure of vindication in Washington and the renewed optimism may have blunted censure of the U.S while exposing China.
Aside from allowing currencies to float at market-determined levels the Treasury official said the U.S. hasn't yet determined what policy mix should be included in any framework on capital-flow management. But, the official said, it should include an assessment of the spill-over effects that capital controls and exchange-rate policy have on major trading partners.
The official also said there may be some circumstances for use of policies designed to manage investment flows in and out of countries, often called capital controls. Traditionally, the U.S. has objected to such controls, but given the circumstances of some emerging countries, Washington appears to be taking a slightly more practical approach, seeing the opportunity to maintain pressure on Beijing.
"When emerging-market countries with over-valued currencies are facing undue burdens of adjustment, there may be scope for carefully-designed macroprudential measures," the official said.
In Brazil recently, Treasury Secretary Timothy Geithner called some of the country's capital control measures it uses "pragmatic." Treasury officials point to the fact that Brazil's strong currency and already relatively high interest rates leave the country with little room to maneuver to tame inflation and their own currency strengthening. China, meanwhile, could help to take some of the currency pressure off nations such as Brazil by raising the value of its currency.
Source: http://online.wsj.com
The G-20 will tackle rebalancing the global economy and emerging-market concerns about volatile capital flows and commodity-price inflation as some of its top priorities when world financial leaders meet in Paris, France later this week.
In particular, Washington supports a proposal by the G-20 chairman, French President Nicolas Sarkozy, for the group to craft guidelines for how authorities manage the mountains of cash flowing between nations, a senior U.S. Treasury official said Tuesday.
"We need a better framework for addressing volatility in capital inflows," the official said.
China's policy of keeping a tight lid on the yuan, despite some moves toward liberalizing its currency, has become increasingly irksome to developing nations such as Brazil and South Korea. Low interest rates in the U.S. and Europe are fueling massive investment into emerging nations that promise higher cash yields, but the under-valued yuan is forcing other developing nations to bear the brunt of the adjustments given that their exchange rates are largely already floating at market rates.
While the U.S. believes there has been notable progress by Beijing to reform its currency policy, the official said Washington plans remain "intensely engaged" to ensure ongoing appreciation.
For many developing economies, the yuan hasn't appreciated at the same pace as it has with the dollar, however.
A raft of emerging-market economies are near overheating, and food and other commodity-price inflation is adding to their economic problems. For those with floating exchange rates, it's difficult to combat inflation without putting additional pressure on their currencies, which in some cases are overvalued, the official said.
That's why many governments in those countries have enacted a slew of capital controls, anathemas to investors who don't want any restrictions in their capital. The problem, along with searing inflation in food and other commodity prices, has provided another context for the G-20 to press Beijing to pick up the pace on appreciating its currency to market-determined levels, and allowing it to be freely tradable and convertible.
The U.S. itself encountered a barrage of criticism from emerging nations at the last meeting of world leaders in November for its loose monetary policy. Washington said then that the monetary stimulus was needed to fuel recovery of the world's biggest economy and the driver for much of the world's growth. With indications now that the recovery in the U.S. is gathering steam, there's some measure of vindication in Washington and the renewed optimism may have blunted censure of the U.S while exposing China.
Aside from allowing currencies to float at market-determined levels the Treasury official said the U.S. hasn't yet determined what policy mix should be included in any framework on capital-flow management. But, the official said, it should include an assessment of the spill-over effects that capital controls and exchange-rate policy have on major trading partners.
The official also said there may be some circumstances for use of policies designed to manage investment flows in and out of countries, often called capital controls. Traditionally, the U.S. has objected to such controls, but given the circumstances of some emerging countries, Washington appears to be taking a slightly more practical approach, seeing the opportunity to maintain pressure on Beijing.
"When emerging-market countries with over-valued currencies are facing undue burdens of adjustment, there may be scope for carefully-designed macroprudential measures," the official said.
In Brazil recently, Treasury Secretary Timothy Geithner called some of the country's capital control measures it uses "pragmatic." Treasury officials point to the fact that Brazil's strong currency and already relatively high interest rates leave the country with little room to maneuver to tame inflation and their own currency strengthening. China, meanwhile, could help to take some of the currency pressure off nations such as Brazil by raising the value of its currency.
Source: http://online.wsj.com
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