At the weekend meeting of the International Monetary Fund and World Bank in Washington, pressure is mounting on China to play its part in resolving global financial imbalances by allowing its currency to rise at a faster pace against the dollar. VOA's Barry Wood has more.
In their strongest statement yet, finance ministers from the major advanced economies called on China to accelerate the appreciation of its currency, the renminbi (also called the yuan). Previously, finance ministers from seven rich countries (the Group of Seven- U.S.,U.K., Japan,Germany, France,Italy, Canada) had spoken only of China's need to allow market forces to determine the value of its currency. Now, they say explicitly that the renminbi needs to gain in value.
Henry Paulson, the U.S. Treasury Secretary who chaired the Friday meeting of the Group of Seven finance ministers, says China faces more risks from moving slowly on the exchange rate than moving faster. "They (the Chinese) have always said the reason that they're not moving more quickly is that they care about stability. We (also) care about (financial) stability. But we happen to think there is more risk from moving too slow than in moving more quickly," he said.
China's deputy central bank chief said in Washington on Friday that further domestic financial reforms are required before the currency can be fully subjected to market forces.
Over the past two years, while the dollar's value has declined from ten to 20 percent in relation to other major currencies, it has declined by only five percent against the renminbi. China regularly enters currency markets to buy dollars to hold the renminbi more or less steady against the dollar. Many experts say the renminbi is undervalued by as much as 40 percent.
Fred Bergsten, the head of the Peterson Institute in Washington, says by holding its currency artificially low China is violating the rules of international finance. "China, which is this big player in the global economy, is violating some of the crucial international rules of the game, predominately, for this purpose, the IMF rules about competitive undervaluation, large protracted one-way intervention in the currency markets," he said.
Finance ministers are focused mainly on global imbalances and an economic outlook that has become clouded by the record run-up in oil prices and turmoil in credit markets. There is also considerable discussion about the changes in leadership at the IMF and World Bank and plans to realign the weighted voting shares to give more representation to developing countries.