http://www.bloomberg.com/news/2010-1...urrencies.html

By Aki Ito, Kathleen Chu and Rebecca Christie - Nov 6, 2010 7:00 AM ET Tweet (31)LinkedIn Share
Business ExchangeBuzz up!DiggPrint Email . Timothy Geithner, U.S. treasury secretary,center, speaks during a joint news conference at the APEC Japan 2010 Finance Ministers' Meeting in Kyoto, Japan. Photographer: Tomohiro Ohsumi/Bloomberg
Asia-Pacific finance ministers endorsed the Group of 20’s pledge to avoid competitive exchange- rate devaluations as China softened its response to the Federal Reserve’s monetary stimulus.

“We will move towards more market-determined exchange rate systems that reflect underlying economic fundamentals” without competing to force down currency rates, the 21-member Asia- Pacific Economic Cooperation forum ministers said in a statement today in Kyoto, Japan. The language echoed the G-20 finance chiefs’ communiqué of Oct. 23.

Treasury Secretary Timothy F. Geithner said the U.S. is committed to a “strong” dollar and won’t use its currency to gain a competitive advantage, amid concern the Fed’s easing will drive down its value. China’s Vice Finance Minister Wang Jun said the U.S. move to buy $600 billion of Treasuries is aimed at boosting growth, helping the global economy, two days after another official said it risks undermining global confidence.

While the gathering avoided public disagreements over exchange rates and the impact of the Fed’s decision, the joint statement broke no new ground in committing nations to shrink trade and investment imbalances that contributed to the financial crisis. Geithner said talks on the matter will take time, and cited an emerging consensus on a framework obligating countries to avoid excessive current-account imbalances.

Stability Goal

“We’re trying to make sure as the world economy recovers, that future growth is sustainable and we don’t see reemerge the kind of excess imbalances on the trade side, either surpluses or deficits, that could threaten future growth” and stability, Geithner said at a joint press conference after the meeting.

G-20 leaders meeting Nov. 11-13 in Seoul are set to approve the framework agreed by the finance ministers and central bankers in Gyeongju, South Korea, Geithner said. He added that the challenge of addressing global imbalances dates from the 1940s and “it’s a process that’s going to take some time.”

The Treasury chief added that he’s not seeking specific targets for current-account deficits or surpluses, after saying last month that 4 percent of GDP was “likely to emerge as the basic benchmark countries look to.”

“There had been a lot of resistance to the current-account targets and the best they are probably going to get is some sort of global agreement that there is a need to rebalance,” said Mitul Kotecha, the Hong Kong-based head of global foreign- exchange strategy at Credit Agricole CIB.

Fed Repurcussions

Ministers discussed the consequences of the Fed’s Nov. 3 decision, ranging from the impact on the U.S. economic recovery to the potential for the move to depress the dollar and push up other currencies, Canadian Finance Minister Jim Flaherty told reporters.

“We pay close attention to the U.S. quantitative-easing policy,” Wang said at the news conference. “Quantitative easing policy that’s aimed at boosting the U.S. economy will help the revival of the global economy tremendously.”

Chinese officials and economists have offered a range of comments on the Fed decision. Vice Foreign Minister Cui Tiankai said at a press briefing in Beijing yesterday that “many countries are worried about the impact” and that “it would be appropriate for someone to step forward and give us an explanation, otherwise international confidence in the recovery and growth of the global economy might be hurt.”

China Responses

Xia Bin, an academic adviser to the central bank, said at a forum in Beijing Nov. 4 that he was worried about the risk of a Chinese asset bubble as the U.S. engaged in “uncontrolled” money printing. German Finance Minister Wolfgang Schaeuble said yesterday in Berlin the Fed was “clueless” and the move wouldn’t stoke growth.

China will continue to monitor reaction to the American central bank’s strategy, Wang said.

While many countries at the APEC meeting said the Fed’s policy is leading to challenges, nobody called for an end to the U.S. easing, a Japanese finance ministry official told reporters on condition of anonymity in Kyoto after the gathering.

Members of APEC account for more than half of the world’s total gross domestic product and about 44 percent of global trade, according to the organization’s website. Asian nations’ currencies have soared this year as the region led the global recovery and central banks from South Korea to Malaysia to Taiwan raised interest rates from global-recession lows.

Currency Gains

Thailand’s baht has soared 13 percent against the dollar this year, Malaysia’s ringgit has risen 11 percent and Indonesia’s rupiah yesterday reached its highest level in more than two years, as did the MSCI Asia Pacific Index of stocks.

“Net capital flows have returned in a significant volume to emerging economies of the region, raising the risk of capital flow volatility and increases in asset prices in some economies,” the APEC statement said. “Advanced economies are recovering more slowly.”

Geithner said that exchange-rate appreciation can help cope with capital inflows, and currency policy is part of the way faster-growing nations can prevent excessive current-account surpluses. He also said that private-sector hiring, productivity and business investment gains and an increase in hiring show the U.S. has “a very good chance” of continuing to grow and recover fully from the financial crisis.

Fed Chairman Ben S. Bernanke yesterday told college students in Jacksonville, Florida, that “the best fundamentals for the dollar will come when the economy is growing strongly.” Geithner declined to comment on the U.S. monetary policy stance, saying today the U.S. has an “independent” central bank.

“We will never use our currency as a tool to gain competitive advantage,” Geithner told reporters today.

About 40 percent of the world’s population lives in APEC member economies, the biggest of which are the U.S., China and Japan. Other members are Australia, Brunei, Canada, Chile, Hong Kong, Indonesia, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, Russia, Singapore, South Korea, Taiwan, Thailand, and Vietnam.