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Greenspan touts currency flexibility

Former US central bank chief Alan Greenspan said yesterday that global economic imbalances might improve if some high-growth economies allowed their currencies to strengthen.

"World equilibrium is probably better reached by allowing a number of these countries, which are showing extraordinary economic growth and really in many cases twice the growth of the developed nations, and allow currencies to firm," the former US Federal Reserve chairman said in an address to a conference in Seoul sponsored by the Financial Times newspaper.

Greenspan spoke via satellite from the US. He didn't specify the economies by name, but was responding to a question about the accumulation of vast amounts of foreign reserves by Asian countries including China, Japan and South Korea.

"I realize what that does to competitiveness, but that's the way markets work efficiently," Greenspan said. "In other words, to prevent the exchange rates from moving creates all sorts of distortions."

Greenspan, who led the US Federal Reserve from 1987 until his retirement early this year, said he doubted the economies of Asia could formally agree on ways to work together to allow their currencies to strengthen in tandem.

"My judgment would be it's very difficult to get an agreement between a number of major countries who have their own domestic political adjustments to make and find that there is a single adjustment on which all could agree," he said.

Greenspan said that there was a significant amount of liquidity worldwide, but added that the situation wasn't permanent and asset prices would eventually fall.
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