Geithner pushes APEC to adopt market-set currencies

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US Treasury Secretary Timothy Geithner said Asia-Pacific nations need “market-oriented” currencies that are in line with their economic fundamentals to encourage new sources of growth.

Members of the Asia-Pacific Economic Cooperation group, which make up more than half of the world’s gross domestic product, must focus on strategies to boost private demand as policy makers start unwinding stimulus measures, Geithner and the finance ministers of Indonesia and Singapore wrote in a Wall Street Journal column distributed by the US Treasury Thursday.

The call comes as pressure rises on China, the world’s third-largest economy, to abandon the currency’s fix to the dollar it has implemented since July 2008. A stronger yuan may help to deepen a shift in the nation’s economy toward domestic demand, away from reliance on exports, analysts say.

“Market-oriented exchange rates in line with economic fundamentals will be essential in assuring the resource and sectoral shifts to match and foster the new patterns of demand,” said Geithner, Indonesia’s Sri Mulyani Indrawati and Singapore’s Tharman Shanmugaratnam.

APEC meetings

APEC finance ministers are meeting in Singapore Thursday, before leaders from the 21-member group gather Nov. 14-15. Policy makers in a number of forums, including the Group of 20, have called this year for a shift away from global dependence on American spending and Chinese savings to address trade and investment imbalances that contributed to the financial crisis.

“APEC must lay the basis for a new period of economic dynamism over the medium to long term,” the three finance chiefs said. “Depending on individual economies’ circumstances, a combination of macroeconomic policy adjustments and structural reforms will be needed.”

China has maintained the yuan’s value at around 6.83 against the dollar since July 2008. European Central Bank President Jean-Claude Trichet said last week a stronger Chinese currency would help the global economy, and the International Monetary Fund has called it “significantly undervalued.”

Those calls may escalate after economic figures Wednesday indicated China’s economic expansion accelerated in October. Industrial production rose 16.1 percent from a year before, the most since March 2008, with retail sales and the trade surplus also climbing.

PBOC on yuan

Hours after the data were released, the central bank said foreign-exchange policy will take into account global capital flows and changes in major currencies, prompting speculation it will allow the currency to strengthen. The yuan’s de-facto peg has left it dropping along with the US currency against the euro and yen.

Policy makers will improve the setting of the yuan’s rate in a “proactive, controlled and gradual manner and based on international capital flows and movements in major currencies,” the People’s Bank of China said Wednesday in a quarterly report. Officials previously aimed to keep the yuan “stable.”

“The change in description of the yuan policy may signal an early warning to the market,” said Shi Lei, a Beijing-based analyst at Bank of China Ltd., the nation’s third-largest lender.

Aside from China, some other APEC members oversee controls on their currencies. Malaysia, Singapore and Vietnam manage their exchange rates against a basket of other currencies, while Hong Kong’s dollar is pegged to its US counterpart. Taiwan and Thailand regularly sell their currencies in market interventions.

The region’s emerging economies need “deeper and more efficient” financial markets to boost investment, Geithner and his colleagues also said. Those nations must strengthen social policies such as health and retirement programs, reducing the need for precautionary savings that contribute to global imbalances, the officials wrote.

APEC’s biggest economies are the US, Japan and China. 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.

Source: Bloomberg

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