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Mon, Nov 19, 2007 - Page 10 News List

Asia must ease grip on currencies: G20

WORRIES The US Federal Reserve has cut interest rates twice since September, but India, China and euro nations say they are concerned about accelerating inflation

BLOOMBERG

The Group of 20 nations said some Asian countries need to allow their currencies to appreciate more after European and Canadian officials stepped up pressure on China in the past week.

The G20 agreed on the need for "greater exchange-rate flexibility in a number of surplus countries" in "emerging Asia," according to a statement released yesterday after two days of talks in Kleinmond, South Africa.

The G20 groups the largest developed countries, including the US, France and Canada, with emerging markets such as China and India.

G7 officials have strengthened their rhetoric on China as concern mounts the country isn't shouldering enough of the dollar's slide, garnering an unfair advantage for its exporters.

French Finance Minister Christine Lagarde said yesterday the yuan is "causing tensions" and Canada's Jim Flaherty said on Saturday China and other Asian countries "need to do more."

The euro and the Canadian dollar have soared to records against the US currency as China restrains the yuan's exchange rate. While China has allowed its currency to rise about 5 percent against the dollar this year, it has fallen against the euro by about the same amount.

The G20 didn't go as far as the G7's statement last month, which singled out China and the need for an "accelerated appreciation" of the yuan.

The US currency has dropped about 11 percent so far this year, based on the Federal Reserve's US Trade-Weighted Major Currency Index. It fell this month to its weakest against the euro since the European currency's debut in 1999, to a 26-year low versus the pound and the lowest against Canada's dollar since it was floated in 1950.

"Greater balance in exchange rates provides us with stability," South African Finance Minister Trevor Manuel said at a press conference to conclude the G20 meeting.

The G20 also said that "rising energy and food prices will remain an important source of price pressures" and central banks "will need to assess carefully the inflation outlook in light of both tight conditions in commodity markets and the downside risks to growth."

Policy makers around the world are trying to curb inflation just as fallout from the biggest US housing slump in 16 years spreads through financial markets and a weaker dollar threatens growth.

While the US Federal Reserve has cut interest rates twice since September to shore up US expansion, policy makers in India, China and the euro nations are worried about accelerating inflation.

The statement said G20 nations agreed that easing lopsided trade and investment flows is a "shared responsibility."

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