The US pressed China on Friday to move toward a market-based exchange rate, but Beijing said not to meddle with its management of the yuan, setting the stage for a clash at next week’s G20 summit.
World leaders gathering in Toronto on June 26-27 are struggling to maintain the crisis-forged unity that has been credited with preventing another Great Depression.
Now that the global economy is on the mend, divisions are beginning to show.
US President Barack Obama released a letter to his G20 colleagues zeroing in on prickly policy differences over China’s currency stance and debt-wary Europe’s rush to rein in bulging budget deficits.
Canadian Prime Minister Stephen Harper, who will host the meeting, urged G20 countries to halve their fiscal deficits by 2013 and stabilize debt-to-GDP ratios by 2016, according to an official, who also said China’s currency would be discussed.
“A key message [at the summit] will be that across the G20, all countries have things they need to do to support strong, sustained and balanced growth,” a Canadian senior official told a briefing.
“One of the things that I expect will be discussed is the contribution a more flexible China exchange rate will make to that,” the official said.
Earlier, Chinese Vice Foreign Minister Cui Tiankai (崔天凱) told reporters the value of the yuan currency was not up for debate at the summit and again rejected outside interference in Beijing’s foreign exchange policies.
“The [yuan] is China’s currency,” he told a news briefing in Beijing. “This is not an issue the international community should discuss.”
Obama, under pressure from some US lawmakers who accuse his administration of soft-pedaling on China, said free-floating currencies were “essential” to global economic activity, a thinly veiled reference to the yuan.
“The signals that flexible exchange rates send are necessary to support a strong and balanced global economy,” Obama wrote.
China has kept the yuan at about 6.83 to the dollar for almost two years to help its exporters ride out the global financial crisis. Many Western economists believe it is undervalued by as much as 40 percent.
“China’s statement is ... absolutely outrageous,” said Morris Goldstein, a senior fellow at the Peterson Institute for International Economics in Washington. “Where should we be discussing it? At the World Cup?”
The White House said the world would be “better off” if China had a market-based exchange rate. A spokeswoman said the administration would “take stock” of the issue of the currency report after the G20 meeting.
Obama also directed stern words at Europe. In a letter to G20 colleagues on Wednesday, he said the highest priority at next week’s meeting must be to safeguard the recovery and not succumb too soon to demands to shrink government debt.
“We worked exceptionally hard to restore growth; we cannot let it falter or lose strength now,” he said.
The US has urged Germany in particular not to pull the plug on government spending too soon for fear that doing so would derail the still-fragile economic recovery.
Berlin thinks shoring up public finances is an immediate priority, underscored by Greece’s debt troubles and growing worries other small, heavily indebted European countries could face a similar fate.
Obama said it was critical that the timing and pace of the fiscal pullback “suit the needs of the global economy” and not just domestic demands.
The US and China appeared to find some common ground on this issue. Zhu Guangyao (朱光耀), China’s vice finance minister, said countries with serious budget deficits should accelerate fiscal consolidation, but in a manner that is “growth-friendly.” The US treasury secretary has used the same phrase to describe the US position on debt.
Obama said countries should be prepared to respond quickly and forcefully to avert another slowdown if the recovery fades. That might not be well received at home, where Obama has faced resistance from US Congress over adding to an already swollen government debt burden.
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