US Treasury Secretary Timothy Geithner said Asia-Pacific nations need ââ‚¬Å“market-orientedââ‚¬ 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 worldââ‚¬â„¢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 worldââ‚¬â„¢s third-largest economy, to abandon the currencyââ‚¬â„¢s fix to the dollar it has implemented since July 2008. A stronger yuan may help to deepen a shift in the nationââ‚¬â„¢s economy toward domestic demand, away from reliance on exports, analysts say.
ââ‚¬Å“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,ââ‚¬ said Geithner, Indonesiaââ‚¬â„¢s Sri Mulyani Indrawati and Singaporeââ‚¬â„¢s Tharman Shanmugaratnam.
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.
ââ‚¬Å“APEC must lay the basis for a new period of economic dynamism over the medium to long term,ââ‚¬ the three finance chiefs said. ââ‚¬Å“Depending on individual economiesââ‚¬â„¢ circumstances, a combination of macroeconomic policy adjustments and structural reforms will be needed.ââ‚¬
China has maintained the yuanââ‚¬â„¢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 ââ‚¬Å“significantly undervalued.ââ‚¬
Those calls may escalate after economic figures Wednesday indicated Chinaââ‚¬â„¢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 yuanââ‚¬â„¢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 yuanââ‚¬â„¢s rate in a ââ‚¬Å“proactive, controlled and gradual manner and based on international capital flows and movements in major currencies,ââ‚¬ the Peopleââ‚¬â„¢s Bank of China said Wednesday in a quarterly report. Officials previously aimed to keep the yuan ââ‚¬Å“stable.ââ‚¬
ââ‚¬Å“The change in description of the yuan policy may signal an early warning to the market,ââ‚¬ said Shi Lei, a Beijing-based analyst at Bank of China Ltd., the nationââ‚¬â„¢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 Kongââ‚¬â„¢s dollar is pegged to its US counterpart. Taiwan and Thailand regularly sell their currencies in market interventions.
The regionââ‚¬â„¢s emerging economies need ââ‚¬Å“deeper and more efficientââ‚¬ 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.
APECââ‚¬â„¢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.