The US will push China to untie its currency from the dollar as soon as possible, a top US Treasury Department official said on Friday ahead of the Group of Seven (G-7) finance ministers meeting.
"Our discussions with China have been good and candid," said John Taylor, the US Treasury Department's undersecretary for international affairs. "We know they are taking steps toward a more flexible exchange rate."
Taylor, who is standing in for US Treasury Secretary John Snow, was to meet with Chinese economic policymakers on Friday. He said the US would like to see China adopt a flexible rate "as quickly as possible."
People's Bank of China Governor Zhou Xiaochuan (周小川), however, hinted in an address to business and government leaders that China will be asking for more time.
Zhou did not address the issue directly, but said China needed more time to reform its economy -- a position repeated often by Chinese officials in the run-up to the meeting of finance ministers from the leading industrialized nations, where China has guest status.
Chinese leaders say they eventually plan to let the yuan trade freely but argue that for now, keeping the currency stable is the best option for the Chinese economy -- and by extension, the world economy.
"We know that reforming the financial sector takes time," Zhou said on Friday. "We need time to educate a new generation of bankers."
China's pegging of the yuan to the US currency has supercharged its exports as the dollar has declined -- dealing a double blow to Japanese and European companies already facing competition in international markets from now-cheaper US products. Critics contend the yuan is undervalued by as much as 40 percent.
Several attendees are expected to highlight the US' huge deficits, which have been a drag on the dollar. The euro rose from about US$1.20 in September to a high of US$1.3667 at the end of December, and the dollar tumbled from about 111 yen in September to 102 toward the end of the year. The dollar has since recovered a little.
European Central Bank president Jean-Claude Trichet told the conference it was unacceptable for developed countries to run long-term current account deficits.
"The industrialized world as a whole is in deficit, there is a current account deficit, and there is no offsetting of the US current account deficit by the other industrialized countries," Trichet said. "That of course means that we are structurally asking the rest of the world to finance us ... It doesn't seem to me that this is an acceptable and sustainable long-term feature of the present functioning of the global economy."
The US trade and budget deficits and the purchase of large US dollar reserves by Asian countries were combining to cause "global imbalances," said Bank of England Governor Mervyn King.
US Federal Reserve Chairman Alan Greenspan told the conference that a variety of factors from a weaker dollar to tougher budget discipline in Congress may finally start to restrain the explosive growth in the US trade deficit.
A weaker dollar should narrow the deficit by making foreign goods more expensive to US consumers and US exports cheaper for foreigners, Greenspan said.
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