November 5, 2010
ADB Chief Urges More Flexible China Yuan to Cut Imbalances
KYOTO, Japan -(Dow Jones)- The president of the Asian Development Bank, Haruhiko Kuroda, on Friday urged China to make its currency more flexible, saying a more freely traded yuan would help reduce global trade imbalances.
"With China's economy growing dynamically, it is basically desirable for (the yuan) to become more flexible," Kuroda told reporters. "Rises in its exchange rate are desirable for the Chinese economy, as they will make adjustments in current account imbalances more smooth, and at the same time, further reduce concerns over (China's) inflation."
Noting China's tight control over foreign capital inflows, Kuroda also said: " It will become necessary to gradually ease the capital regulation in the mid and longer terms."
Kuroda made the comments as finance ministers from the Asia-Pacific Economic Cooperation group of nations gathered in Kyoto to tackle the divisive issue of rising Asian currencies.
China's policy of keeping the yuan weak to support exports has again been drawing strong attention as the U.S. is turning up the heat on Beijing to change the policy.
The weak yuan as one reason other emerging economies regularly intervene in the currency market to slow rises in their own currencies to compete with Chinese exports--a situation some analysts say could lead to a destructive competition to devalue currencies.
During the APEC meeting, "I think there will be debates on global imbalances as well as (about) a currency war, or a competition to weaken currencies," Kuroda said.
Kuroda sounded sympathetic with smaller Asian nations trying to contain the appreciation of their currencies.
He warned that many face problems stemming from growing inflows of foreign capital caused by monetary loosening in advanced economies. This is helping drive the currencies of smaller Asian countries higher and fueling inflation in their economies, he said.
Kuroda expressed support for efforts by nations like Thailand to limit such inflows through regulation.
"There are situations where even a combination of fiscal, monetary and foreign exchange policy can't be enough" to deal with inflows of hot money, he said. " Under such situations, it is internationally accepted ... to employ capital controls as a temporary measure."
While much foreign capital has been flowing into economies like Thailand, Malaysia, Indonesia and the Philippines, attempts by local authorities to curb gains in their currencies haven't been very successful.
Intervention tends to boost the amount of cash in local markets, stoking inflation, he noted. While Thailand and Malaysia have lifted interest rates to keep prices stable, such monetary tightening attracts more foreign money, and this puts upward pressure on currencies, he said.
"This is a dilemma is hard to deal with," he said.
Turning to the U.S. proposal for the G-20 industrial and developing nations to limit current account surpluses or deficits to within 4% of gross domestic product, Kuroda said this idea may be subject to debate.
"It is realistic to use some indicators as a kind of benchmark to gauge progress in efforts to correct imbalances," he said. "But there's room for debates on ... whether the 4% target is appropriate."
He stressed that even though changes in foreign exchange rates are a "very important factor" in cutting current-account imbalances, structural economic reforms are also key.
http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201011050726dowjonesdjonline000411&title=update-adb-chief-urges-more-flexible-china-yuan-to-cut-imbalances
ADB Chief Urges More Flexible China Yuan to Cut Imbalances
KYOTO, Japan -(Dow Jones)- The president of the Asian Development Bank, Haruhiko Kuroda, on Friday urged China to make its currency more flexible, saying a more freely traded yuan would help reduce global trade imbalances.
"With China's economy growing dynamically, it is basically desirable for (the yuan) to become more flexible," Kuroda told reporters. "Rises in its exchange rate are desirable for the Chinese economy, as they will make adjustments in current account imbalances more smooth, and at the same time, further reduce concerns over (China's) inflation."
Noting China's tight control over foreign capital inflows, Kuroda also said: " It will become necessary to gradually ease the capital regulation in the mid and longer terms."
Kuroda made the comments as finance ministers from the Asia-Pacific Economic Cooperation group of nations gathered in Kyoto to tackle the divisive issue of rising Asian currencies.
China's policy of keeping the yuan weak to support exports has again been drawing strong attention as the U.S. is turning up the heat on Beijing to change the policy.
The weak yuan as one reason other emerging economies regularly intervene in the currency market to slow rises in their own currencies to compete with Chinese exports--a situation some analysts say could lead to a destructive competition to devalue currencies.
During the APEC meeting, "I think there will be debates on global imbalances as well as (about) a currency war, or a competition to weaken currencies," Kuroda said.
Kuroda sounded sympathetic with smaller Asian nations trying to contain the appreciation of their currencies.
He warned that many face problems stemming from growing inflows of foreign capital caused by monetary loosening in advanced economies. This is helping drive the currencies of smaller Asian countries higher and fueling inflation in their economies, he said.
Kuroda expressed support for efforts by nations like Thailand to limit such inflows through regulation.
"There are situations where even a combination of fiscal, monetary and foreign exchange policy can't be enough" to deal with inflows of hot money, he said. " Under such situations, it is internationally accepted ... to employ capital controls as a temporary measure."
While much foreign capital has been flowing into economies like Thailand, Malaysia, Indonesia and the Philippines, attempts by local authorities to curb gains in their currencies haven't been very successful.
Intervention tends to boost the amount of cash in local markets, stoking inflation, he noted. While Thailand and Malaysia have lifted interest rates to keep prices stable, such monetary tightening attracts more foreign money, and this puts upward pressure on currencies, he said.
"This is a dilemma is hard to deal with," he said.
Turning to the U.S. proposal for the G-20 industrial and developing nations to limit current account surpluses or deficits to within 4% of gross domestic product, Kuroda said this idea may be subject to debate.
"It is realistic to use some indicators as a kind of benchmark to gauge progress in efforts to correct imbalances," he said. "But there's room for debates on ... whether the 4% target is appropriate."
He stressed that even though changes in foreign exchange rates are a "very important factor" in cutting current-account imbalances, structural economic reforms are also key.
http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201011050726dowjonesdjonline000411&title=update-adb-chief-urges-more-flexible-china-yuan-to-cut-imbalances
