BRICs should not pressure China on yuan: Goldman’s O’Neill

By Ana Nicolaci da Costa

BRASILIA (BestGrowthStock) – There is no advantage for Brazil, Russia and India in putting pressure on China to let its currency strengthen since Beijing is already heading in that direction, Goldman Sachs chief economist Jim O’Neill said on Wednesday.

O’Neill, who in 2001 coined the term BRIC to describe the world’s four biggest emerging economies, made the remarks on the eve of the second presidential summit of the four-country group in Brasilia, Brazil’s capital.

China has been under pressure from the United States and other countries to let its currency strengthen. Brazil joined the chorus last week when Finance Minister Guido Mantega said a flexible currency policy in China “would be very good” for the global economy. A weak yuan makes Chinese exports more competitive against their global counterparts.

“The Chinese don’t tell the Brazilians what they should do, and so why should the Brazilians tell the Chinese what they should do,” O’Neill told Reuters in a telephone interview from London.

He agreed with Mantega that a flexible yuan would be better for the global economy but said this was already on its way. Speculation Beijing might soon unveil a long-awaited shift in its exchange-rate regime has intensified recently, helping to push the yuan higher.

“One of the ironies of this situation is the Chinese have already basically decided to do that. I think that’s what Washington has realized,” O’Neill added.

President Barack Obama was less sanguine on Tuesday, saying China had yet to set a timetable for reforming the yuan despite “frank” conversations with President Hu Jintao.

The undervalued yuan is a point of tension in the BRIC group since it erodes the competitiveness of domestic manufacturers.

The issue could be discussed on the sidelines of the Group of 20 finance ministers meeting in Washington later this month, a Brazilian government source told Reuters on Friday, although it is unlikely feature formally on the agenda.


A flexible yuan would be necessary for the BRIC countries to make progress in plans for local currency trade, O’Neill said.

Last year, the Chinese and Brazilian central banks said their countries were working on an arrangement to allow exporters and importers to settle deals in local currency, bypassing the U.S. dollar.

“They have made some steps in that direction already with swap agreements but obviously to apply it to all trade between the countries they have got to allow more use of each of their currencies,” O’Neill said.

“The only way that becomes material is if China loosens the controls on the use of the renminbi.”

The issue could be discussed at this week’s summit, although the countries are playing down any push to move toward a new global reserve currency.

The BRICs represent 40 percent of the world population and around 20 percent of the global economy.

Their summit ahead of the G20 meeting in Washington is a way to pressure developed countries about the need to change international organizations to better reflect the importance of the emerging giants in the world economy, O’Neill said.

Brazil and other developing countries have been pushing rich nations to accept a shift in voting power at the International Monetary Fund that would benefit emerging nations.

“I think the fact the BRIC countries are meeting ahead of the G20 is very beneficial. It’s kind of ridiculous that the IMF has more voting rights for the likes of Belgium than the BRIC countries,” he added.

Investment Basics

(Editing by Stuart Grudgings, Andrew Hay)

BRICs should not pressure China on yuan: Goldman’s O’Neill