Geithner ups pressure on China currency

The U.S. will raise pressure on China and other countries to change their economic policies for the good of the global economy at meetings in Washington this week.

Treasury Secretary Tim Geithner offered a preview of the U.S. message on Wednesday, telling an audience at the Brookings Institution that while the U.S. will “do its part” to balance the global economy, countries with budget surpluses must pitch in as well.

Geithner took special aim at currency policies, saying export-driven countries must allow their currencies to appreciate for the good of the world economy. Geithner did not mention China specifically, but his comments made it clear he was targeting that country.

“We believe it is very important to see more progress by the major emerging economies to more flexible, more market-oriented exchange rate systems,” said Geithner, who in his prepared remarks warned of a pattern of “competitive non-appreciation."

Geithner, along with other finance ministers, will be attending meetings of the World Bank and International Monetary Fund this weekend in Washington.

China carefully controls the value of its currency and keeps it artificially low to boost its exports. This has led other export-dependent economies to intervene in their currencies. Some countries such as Brazil have warned of an international currency war.

When large economies keep their currencies from appreciating, “that encourages other countries to do the same,” Geithner said. “The collective impact of this behavior risks either causing inflation and asset bubbles in emerging economies, or else depressing consumption growth and intensifying short-term distortions in favor of exports.”

China’s currency policy has increased tensions with the U.S. The House last week approved legislation that could lead to higher tariffs on imports from China and other countries found to subsidize exports through currency manipulation. It’s unclear whether the Senate will approve the bill in a lame-duck session of Congress after the election.

Solving the currency problem will take a collective approach, according to Geithner, since emerging economies will be less likely to move on their own without confidence that other countries will adjust their own currency values.

“Countries overly reliant on exports to us for their own growth will need to change their policies, or else global growth will slow and all of us will be worse off,” Geithner said.

“Countries that chronically run large surpluses need to undertake policies that will boost their domestic demand,” he continued.