Canada says U.S. FX plan step in right direction

GYEONGJU, South Korea (BestGrowthStock) – Canada backed on Friday a U.S. proposal for emerging economies to cut their current account surpluses and let their currencies rise, and said G20 finance chiefs aimed to draft an action plan at a weekend meeting.

Canadian Finance Minister Jim Flaherty threw his weight behind U.S. Treasury Secretary Timothy Geithner, who in a letter to his Group of 20 colleagues urged countries with surpluses to “undertake structural, fiscal and exchange rate policies to boost domestic sources of growth.”

In return, countries like the United States with big trade and fiscal deficits would take steps to reduce their deficits.

“It’s a step in the right direction. I support it. I think it’s a good idea,” Flaherty said.

“What we’re trying to get to is an action plan that will avoid the temptation by some countries to protect their currencies in different ways.”

Flaherty spoke to reporters ahead of a meeting of G20 finance ministers and central bank governors, dominated by global currency tensions. G20 leaders will meet in Seoul in November.

Nations from the developing world and Japan dismissed the U.S. proposal which Washington says aims to tackle the global imbalances that are once again growing as emerging economies and others take steps to weaken their currencies.

But Canada suggested there was room for negotiation on the details of the plan.

“Current account balances are one useful measure, it’s not the only measure so there’s some discussion about that, about whether or not we’ll be able to agree on a quantitative measures like current account balances and different countries view that in different ways,” Flaherty said.

A senior Canadian finance official, speaking on condition of anonymity, said the idea is not to peg current account balances to a specific target.

The objective is to move toward convergence of current account balances between the gaping deficits of the United States, where fiscal consolidation is needed, and the huge surpluses in countries like China which must domestic savings, he said.

Differences within the G20 over foreign exchange policy and other issues like IMF reform have raised questions about the group’s ability to stay united now that the worst of the global financial crisis has passed.

Flaherty acknowledged there had been some “bumps along the road,” but said G20 nations are in agreement on the direction of changes needed in currencies. He was encouraged by his bilateral meeting with his Chinese counterpart on Friday.

“I think there’s a willingness to open the door to more flexibility over time,” he said of China.

(Reporting by Louise Egan; Editing by Ed Lane)

Canada says U.S. FX plan step in right direction