Geithner says major economies should let currencies adjust

April 18, 2011 - 0:0

U.S. Treasury Secretary Timothy F. Geithner said the world’s major economies need greater flexibility in exchange rates to avoid economic disruptions.

A few emerging-market nations are running “tightly managed currency regimes” by using capital controls and accumulating excess reserves, Geithner said on Sunday in a statement for the International Monetary Fund’s steering committee. The controls put pressure on countries with market-driven exchange rates and fuel inflation in the countries whose currencies are undervalued, he said.
Geithner’s comments, while not identifying China, are part of the U.S.’s efforts to get the country to allow the yuan to rise further. The Group of 20 nations, including the U.S. and China, agreed on Saturday to set up a process for identifying and addressing economic imbalances.
“The current system of exchange rates is an obstacle to effective international cooperation on imbalances,” Geithner said in prepared remarks to the International Monetary and Financial Committee in Washington. “Facilitating rebalancing requires broad consensus that major economies -- advanced and emerging -- need to allow their exchange rates to adjust in response to market forces.”
Geithner called on the IMF to take a larger surveillance role on exchange rates, reserve accumulation and capital flows. He said the U.S. “will do its part” to rein in budget deficits and address its own imbalances and called for other nations to take action.
--------------Budget cuts
“Others, especially those whose fundamentals call for greater exchange-rate flexibility, must also contribute,” Geithner said.
U.S. President Barack Obama has proposed cutting $4 trillion in cumulative deficits within 12 years through a combination of spending cuts and tax increases. The administration is resisting Republican calls for swifter cuts, while also pushing for a set of rules to enforce spending reductions over time.
Geithner said the administration wants to limit spending without threatening the economic recovery. He said the U.S. economic outlook has “improved substantially” since October.
The global economy faces headwinds from budgetary and banking strains in some European countries, he said. Emerging- market nations are grappling with rising commodity and energy prices and will need to craft policies that do not exacerbate global imbalances, Geithner said.
--------------Egypt, Tunisia
The World Bank and the IMF will play an important role by providing financial support to Egypt, Tunisia and other countries in political transition, Geithner said in a separate statement on Sunday to the IMF and World Bank development committee. The World Bank also can help mitigate the effects of rising food costs, he said.
“In some countries, the recurrence of rising food and commodity prices threatens to slow economic recovery, increase poverty and undermine social stability,” Geithner said in the text of remarks. “It is critical that the international community pursue longer-term actions to improve resilience to supply shocks, particularly as global food supplies will have to increase by an estimated 50 percent over the next 20 years to meet projected demand.”
(Source: Bloomberg)