Bank of Korea Governor Park Seung said that Asian central banks may need to increase flexibility in their currencies to allow the dollar to weaken and help reduce the US' record current-account deficit.
"These imbalances may well be rectified through the adjustment of the exchange rate," Park said in the text of a speech to be delivered at a conference today in Seoul.
Asian countries such as China and South Korea have in recent years sold their currencies to curb strength and improve the competitiveness of their exports, which are crucial to economic growth. US Federal Reserve Chairman Alan Greenspan, Bank of Japan Governor Toshihiko Fukui and finance ministers from the Group of Seven industrialized nations have said China should relax its fixed exchange rate to allow gains.
The US trade deficit reached a record US$60.6 billion in February as Americans bought foreign-made televisions, electronics and cars. The trade shortfall with China rose 40 percent in the January-March period from a year earlier to around US$42 billion. A weaker dollar would help shrink the gap by making US exports cheaper.
"The US must devote greater efforts to rein in consumer spending and boost savings," Park said in his speech to celebrate the 55th anniversary of the central bank. "There are limits to resolving the current imbalances through exchange-rate adjustment alone."
Park today will hold meetings with central bank chiefs, including Fukui and People's Bank of China's Zhou Xiaochuan (
Yonhap news on April 10 cited Park as saying the governors will have in-depth discussions about topics that require international cooperation and will discuss issues related to their currencies and foreign exchange reserves.
Central bankers may discuss whether to diversify out of the dollar, which has lost almost a quarter of its value in the past three years against a basket of six major currencies, said Callum Henderson, head of global currency strategy in Singapore at Standard Chartered Plc.
Stemming gains in their currencies has caused reserves to increase. South Korea's overseas currency holdings rose to a record US$206.4 billion at the end of last month, the central bank said on May 3. It has the world's fourth-largest reserves, behind Japan, China and Taiwan.
"A number of central banks have said publicly that they're looking at the issue of diversification, including Korea," Henderson said. "These central banks have such huge reserves that whether the dollar is going up or down, diversification is an important issue."
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