Geithner suggests major currencies "in alignment": report

GYEONGJU, South Korea (BestGrowthStock) – Treasury Secretary Timothy Geithner suggested that he sees no reason for the dollar to sink further against the euro and the yen, saying these major currencies are “roughly in alignment,” the Wall Street Journal reported on Thursday.

In an interview with the newspaper, Geithner also emphasized that the United States was not pursuing a deliberate policy of devaluing the dollar.

This echoed comments he made on Monday in Palo Alto, California, saying “No country around the world can devalue its way to prosperity.”

In the Journal interview, he referred to three groups of currencies. In one, he put countries with currencies “undervalued by any measure” and in the second he put emerging economies with flexible exchange rates that intervene or impose taxes to try to reduce risks.

“In the third group, he put “the major currencies, which are roughly in alignment now,” a suggestion that he sees no need for the dollar to sink more than it already has against the euro and yen,” the newspaper reported.

Geithner said he wants the Group of 20 advanced and emerging economies to agree at meetings in South Korea this weekend to move toward “norms” on exchange rate policies and numerical limits for “sustainable” trade surpluses and deficits.

“Right now, there is no established sense of what’s fair,” he told the newspaper ahead of G20 finance leader meetings starting on Friday in Gyeongju.

“We would like countries to move toward a set of norms on exchange rate policy,” he said.

On Wednesday, another senior U.S. Treasury official said the United States at the G20 meetings would press for countries to reduce global economic imbalances by committing to curb trade surpluses or deficits and by letting currencies rise more in response to market forces.

Currency tensions are expected to take center stage at the G20 meetings, as a decline in the dollar and China’s tightly controlled foreign exchange regime has put upward pressure on other emerging market currencies that are allowed to move more freely.

Several countries, including Brazil this week, have taken steps to stem capital inflows to keep their currencies from rising and eroding the competitiveness of their exports.

While some criticism has been leveled at U.S. Federal Reserve monetary easing for weakening the dollar, U.S. officials are pointing at China’s determination to control its yuan as the main reason for similar actions by other countries. They believe the world will be better off if G20 countries can agree to cooperate more on currency policies.

“When large economies with undervalued exchange rates act to keep their currencies from appreciating, that compels other countries to do the same, setting off a dynamic of competitive nonappreciation,” the senior Treasury official told a news briefing, referring to China.

GIVING CHINA COMFORT TO MOVE

Geithner repeated his view that China’s yuan is significantly undervalued, but if the pace of appreciation since September were sustained, it would correct the undervaluation over time.

“If China knew that if it moved more rapidly, other emerging markets would move with them, it would be easier for them to move,” Geithner said.

U.S. officials have played down expectations for a major currency announcement out of the weekend G20 finance meetings. Any deal is more likely to be announced at a G20 leaders’ summit in Seoul in November.

Geithner sees a G20 currency agreement as an extension of commitments made in Pittsburgh, Pennsylvania, last year to rebalance the global economy, with fast-growing exporters relying more on domestic growth, and big import consumers increasing their savings rates.

“We’re encouraging our partners to put a little more flesh on the skeleton of the rebalancing commitment,” Geithner told the Journal. “We are exploring whether we can agree to commit to keep the external imbalances to levels that are more sustainable, making allowances for different kinds of countries, such as commodity producers.”

China projects that its current account surplus will fall below 4 percent of GDP in the next three to five years, down from about 9 percent in 2008. U.S. officials are hoping to make this a firm commitment.

Tensions over the pace of the yuan’s rise appear likely to continue. Since China depegged the yuan from the dollar in mid-June, it has risen about 2.6 percent.

However, China has signaled that the recent faster pace of yuan appreciation may not be sustained. Chinese exporters could withstand a further yuan rise of almost 6 percent before they started to lose money, a Reuters poll showed on Wednesday.

U.S. officials maintain that the yuan is likely undervalued by some 20 percent.

(Reporting by David Lawder; Editing by Neil Fullick)

Geithner suggests major currencies "in alignment": report