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G20 polite on China forex as yuan decision eyed

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littlekracker


G20 polite on China forex as yuan decision eyed


WASHINGTON, April 24 — After months under pressure from the United States, Europe and other economic powers, China’s controversial yuan currency peg drew no fire yesterday from world finance leaders.

Finance ministers and central bankers from the Group of 20 developed and emerging economies, including China, skated over one of the main bones of contention in international finance.

That could be a sign that policymakers are expecting China to allow the yuan to resume its rise in its own time. Many officials say there is no point adding to outside pressure now, which would anyway be counter-productive.

“There wasn’t any talk about the yuan,” Japanese Finance Minister Naoto Kan said. “I know everyone is interested. But it wasn’t discussed openly at the G7 or G20 probably because everyone there knew that China won’t like that very much.”

The heavyweights of the industralised and developing worlds are just embarking on a process of rebalancing the global economy, “so we will for the time being watch how the situation unfolds,” Canadian Finance Minister Jim Flaherty said.

A joint statement at the end of the G20 meeting made no direct mention of currencies and Brazil, among countries expressing concern about the yuan in the run-up to the meeting, said the main problem for his country was a weak US dollar.

The near silence about China’s foreign exchange policy, which many US economists say undervalues the yuan by as much as 40 per cent, is a contrast to just a few weeks ago.

Under pressure domestically on the issue, US President Barack Obama took the rare step in March of calling on China to move to a more market-oriented exchange rate to help foster a more sustainable world economy.

US Treasury Secretary Timothy Geithner then made a surprise trip to Beijing and signs have emerged that China is preparing to allow the yuan to resume strengthening against the dollar, something it suspended nearly two years ago as the global financial crisis brewed.

Geithner yesterday went out of his way to make sure he created no ripples.

“I’m going to repeat what I’ve said before — nothing new or different in how I respond to that basic question,” Geithner said, when asked about the yuan. “This is China’s choice. And I believe that China will decide it’s in their interest to renew the (currency) reform process... suspended during the crisis.”

Behind the softer tone is a growing sense among US policymakers that public pressure on China on how it should run its currency policy will yield little, a stance long held by Japan and shared by some Asian countries.

“I would be a little reluctant to offer advice to another country about what the value their currency should be,” Sri Lankan Central Bank Governor Ajith Nivard Cabraal told Reuters.

“Rather than requesting others to change their policies, we need to look at our own policies to see how we compete.”

The argument is that China will see the value of letting the yuan move in keeping its inflation under control and balancing an economy set to grow 10 per cent this year and next.

“(Opponents of yuan appreciation argue that) the people who want to have revaluation are just succumbing to foreign pressure and not representing Chinese interests, so it makes it very difficult for the proponents of currency appreciation to gain a consensus in favor of appreciation,” said Nicholas Lardy, an expert on China’s economy at the Peterson Institute for International Economics. — Reuters

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