By Walter Alarkon - 10/10/10 12:54 AM EDT
Finance officials in Washington this weekend put off major decisions on China currency reform until at least next month’s G-20 meeting.
The Obama administration and other Western countries increased pressure at this week’s meetings of the International Monetary Fund and World Bank on Beijing to reform how it values the yuan, which is pegged to the dollar. Officials from the United States, Canada and the United Kingdom have argued economies with undervalued currencies — namely China — should allow them to rise in value to support the global economic recovery.
IMF and World Bank officials on Saturday stressed that countries need to act to support the global economy, but that any measures should be done together.
World Bank President Robert Zoellick noted tepid U.S. jobs data released Friday, which showed a worse-than-expected net job loss of 95,000 for September and an unchanged jobless rate of 9.6 percent.
“This growth is not strong enough to make significant inroads into high unemployment, particularly in developed countries,” he said. “Lack of growth accompanied by high unemployment is having consequences. There’s a danger that countries will turn inward and as a result, international cooperation will falter.”
IMF and World Bank officials stayed away from coming down for one side in the currency debate at the end of the weekend meetings. Dominique Strauss-Kahn, the IMF’s managing director, said the question over how to deal with currencies should be part of the larger debate over the “rebalancing” of the global economy. He said the current situation of developed nations suffering from low growth and emerging ones enjoying higher growth can’t last.
“Some emerging countries, as a reality, are facing large capital inflows, and they need to find way to react to this,” Strauss-Kahn told reporters Saturday. “That is more the surface of the question. The deep waves are on rebalancing growth. Both have to be addressed.”
The lack of concrete action at the IMF sets the stage for next month’s G-20 summit of developed countries in South Korea.
Treasury Secretary Timothy Geithner had pushed at the start of the IMF meetings to drum up international support for currency reforms.
“Our initial achievements are at risk of being undermined by the limited extent of progress toward more domestic demand-led growth in countries running external surpluses and by the extent of foreign exchange intervention as countries with undervalued currencies lean against appreciation,” Geithner said in a speech Friday. “These are the critical challenges of this period, and we must work collectively and through our multilateral forums, such as these meetings, to address them cohesively.”
Geithner received backing from Canadian Finance Minister Jim Flaherty, who called China’s refusal to let the yuan appreciate a “protectionist” policy, as it benefits Chinese goods at the expense of Western exports.
Flaherty told reporters the debates over currency could lead to disputes over trade.
The Western pressure on China comes as Congress is moving forward on legislation that would punish Beijing. The House passed a bill with bipartisan support last month authorizing tariffs on China imports if the yuan’s value doesn’t rise. Sen. Charles Schumer (N.Y.), the third-ranking Senate Democrat, has said he’ll press for a vote on the bill in the upper body after the Nov. 2 elections.