United States Treasury Secretary Timothy Geithner is running into a storm of criticism here over his demands for some of the world’s other leading economies to raise the value of their currencies in order to increase the sale price of their exports on American markets.
Mr. Geithner laid down the gauntlet in what’s seen as a highly contentious letter to other financial ministers and central bank governors meeting here Friday and Saturday in hopes of reaching a consensus on critical financial issues before next month’s G20 summit in Seoul.
The letter was viewed as an attack on China, which has resisted intense American pressure to raise the value of the yuan and would prefer to sidestep the issue as much as possible at the G20 summit on Nov. 11-12, when President Obama and China’s President Hu Jintao will have the chance to argue the issue with other heads of state.
Geithner calls for currency adjustment
Geithner, in his letter, not released by United States officials but revealed by aides of some of the recipients, warned bluntly of the dangers of seeking “competitive advantage by either weakening their currency or preventing appreciation of undervalued currency.”
US officials insist the low value of the yuan, and the currencies of other major countries, is partly responsible for a US trade deficit last year of $380 billion, including $227 billion with China alone. The deficit with China this year by the end of August was $173 billion.
Geithner's letter called on all those countries that are running up huge trade surpluses to commit themselves to “structural, fiscal, and exchange rate policies” that would encourage greater import into their markets. He advised they let their “significantly undervalued” currencies adjust fully over time.
Canada eyes US, UK deficits
Canada’s finance minister, Jim Flaherty, cited “a desire to reach a consensus” among the ministers but said “some countries need dramatic consolidation” – a warning that the US, like Britain, needs to act effectively to scale down its trillion-dollar budget deficit. Officials also blame the US for devaluing the dollar by printing ever more money – another way of intervening in the market.
The standoff left the impression that the ministers might well paper over their differences in vague wording promising cooperation but few specifics.
Geithner’s letter made the rounds among ministers and their aides gathered at the Hilton Hotel, a scenic resort area on the edge of this ancient Shilla kingdom capital of temples and palaces, just as he was arriving here. Chinese officials refrained from immediate comment, clearly preferring to avoid open controversy for the moment, while officials of other countries responded frankly in verbiage that seemed quite strong for such a gathering.
Japan calls Geithner 'unrealistic'
Geithner’s letter drew a quick rejoinder from Japan’s finance minister. Yoshihiko Noda said Geithner’s proposal for targets for redressing imbalances was “unrealistic” and “difficult.” Strong “volatility is in currency markets,” he said, would be “harmful to the stability of the global economy and financial system.”
Officials from the emerging economies of so-called BRIC countries – Brazil, Russia, India, and China – derided the US warning. Russia’s deputy finance minister, Dmitry Pankin, said bluntly that he did not think the US would succeed in attempting “to put the question of exchange rates and current account balances at the top of the agenda, to try to press China to make some commitments.”
Or, as an Indian finance official was quoted telling Reuters, he doubted if “very many emerging economies” would be in favor of “artificially linking current account deficit levels” to a country’s gross domestic product, as Geithner is suggesting.