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Bernanke urges greater yuan flexibility

PHOTO: AP

US Federal Reserve Chairman Ben Bernanke said on Thursday that China should take more steps to make its currency flexible and decouple the yuan from the US dollar.

The new Fed chairman made the comments in his second day of hearings on Capitol Hill, where he was presenting the semiannual economic outlook by the US central bank.

"If you are asking me if I would advocate that the Chinese go to greater flexibility in their exchange rate, I certainly would," Bernanke said in testimony to the Senate Banking panel on Thursday.

"It is in their own long-term interest to do so. It will give them more monetary policy independence, it will reduce the over-dependence of their economy on exports" and will allow China to assume a greater leadership role in global economic deliberations, Bernanke said.

China adopted new yuan trading guidelines last July, which allowed the yuan to appreciate from 8.277 to 8.066 against the US dollar.

Barraged with lawmakers' questions on Thursday over rising foreign ownership of US assets, Bernanke played down fears that China held enough dollars to endanger the US economy.

"If you are asking me if I would advocate that the Chinese go to greater flexibility in their exchange rate, I certainly would."

Ben Bernanke, US Federal Reserve chairman

"I don't think that the Chinese ownership of US assets is so large as to put our country at risk economically," Bernanke said, minimizing the possibility that China might suddenly dump some of its US debt.

"It would be very much against their own interest to do so," he said, ducking a question whether these holdings gave Beijing a potential political lever over the US.

Congressional anger toward China has grown along with soaring US trade deficits that hit a record US$725.8 billion last year -- about 28 percent of that with China alone.

At the end of last year, China held some US$819 billion worth of US assets, mostly in Treasury debt. Its US holdings were surpassed only by Japan, which held US$829 billion worth.

Beijing and Tokyo acquired most of their US securities with money they earned from selling cars, computers and other consumer goods into US markets -- goods US competitors and some lawmakers argue are kept unfairly cheap because of currency actions by the Asian nations.

Not only lawmakers but the Bush administration has grown increasingly frustrated with China, particularly over its reluctance to let its currency rise in value to reflect its growing market power.

US Treasury Secretary John Snow strongly hinted on Thursday that the Treasury was considering naming China a currency manipulator in a report scheduled for release in April -- a step that could open China to US trade retaliation.

"You always want to take market reaction into account when government makes a determination," Snow told reporters in Chicago, when asked whether top officials were discussing the possibility privately with investors.
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