Tags: china | germany | money | currency | g20

China, Germany Rebuff US Actions Before G20

Friday, 05 November 2010 08:17 AM

China rebuffed on Friday a U.S. plan to set target limits for trade imbalances and Germany dubbed the Fed's money-printing policy "clueless," setting the stage for what could be a fractious G20 summit next week.

Washington believes an undervalued yuan is a major cause of economic imbalances and has pressed Beijing, largely in vain, to let the currency rise more swiftly to reflect the strength of what is now the world's second-largest economy.

The waters of the debate have been muddied by the Federal Reserve's decision to buy $600 billion in long-term bonds with new money in an effort to revive the flagging U.S. economy.

Resentment is rumbling worldwide that the initiative will generate even more instability by ramping up currencies against the dollar, inflating asset bubbles and increasing inflation.

"With all due respect, U.S. policy is clueless," German Finance Minister Wolfgang Schaeuble told a conference.

"(The problem) is not a shortage of liquidity. It's not that the Americans haven't pumped enough liquidity into the market and now to say let's pump more into the market is not going to solve their problems."

Policymakers from the world's new economic powerhouses in Latin America and Asia have said they would consider fresh steps to curb capital inflows after the Fed's move.

Zhou Xiaochuan, China's central bank governor, said while Beijing could understand that the Fed was implementing more monetary easing in order to stimulate the U.S. recovery, it may not be a good policy for the global economy.


Efforts to reduce imbalances that are destabilizing the global economy will top the agenda of the November 11-12 summit of the Group of 20 forum of leading economies in Seoul.

But China and Germany have now both opposed a plan floated by U.S. Treasury Secretary Timothy Geithner last month to cap current account surpluses and deficits at 4 percent of gross domestic product.

"Of course, we hope to see more balanced current accounts," Chinese Vice-Foreign Minister Cui Tiankai told a news briefing. "But we believe it would not be a good approach to single out this issue and focus all attention on it. The artificial setting of a numerical target cannot but remind us of the days of planned economies."

German Economics Minister Rainer Bruederle dismissed the proposal at the time as smacking of old-style central planning.

Cui, China's chief G20 negotiator, also rejected any attempt to set target ranges for the yuan to appreciate.

"That would indeed be asking us to manipulate the ... exchange rate, and it is something that we will of course not do," Cui said.

ASEAN, the 10-nation group of southeast Asian countries, will also raise concerns at the G20 over the U.S. proposals.

"We would like to work with G20 to correct imbalances," Thai Finance Minister Korn Chatikavanij said in the Japanese city of Kyoto where Asia-Pacific finance ministers are meeting.

"But we are concerned that the U.S. plan about current account balances might lead to trade protectionism."

The Asia-Pacific Economic Cooperation (APEC) forum in Kyoto, which Geithner will attend, will also provide an opportunity for emerging economies to voice their views of the Fed's action.


Japan's central bank on Friday gave details of its own asset-purchase programme, announced last month. Worth 5 trillion yen ($62 billion), it is just a tenth the size of the Fed's scheme.

By pointing out the difference in scale, Economics Minister Banri Kaieda suggested that the Bank of Japan might face calls in the future for an expanded scheme.

Cui said he was worried at the prospect of a flood of money pouring into global markets in search of higher yields. As the issuer of the world's main reserve currency, the United States needed to adopt a responsible position.

"They owe us some explanation," he said. "I've seen much concern about the impact of this policy on financial stability in other countries."

An official newspaper said China needed to respond by raising interest rates again following a surprise increase on October 19.

Inflationary pressures prompted both India and Australia to raise interest rates this week.

Thailand's Korn said he accepted that the country's currency, the baht, would appreciate due to strong economic fundamentals, but he wanted to avoid damage from a sudden reversal in speculative money.

"We are willing to take whatever measures when necessary," he told Reuters before the start of a meeting of the APEC finance ministers.

Thailand has imposed a 15 percent withholding tax on interest and capital gains earned by foreign investors on Thai government bonds. Brazil has also taxed foreign buyers of its bonds.

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China rebuffed on Friday a U.S. plan to set target limits for trade imbalances and Germany dubbed the Fed's money-printing policy clueless, setting the stage for what could be a fractious G20 summit next week. Washington believes an undervalued yuan is a major cause of...
Friday, 05 November 2010 08:17 AM
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