US, China clash amid fears of currency war

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A meeting of world economic powers did little to ease fears of a global currency war, with the United States and China facing off over Beijing's currency policies and no agreement in sight.

Finance ministers and central bankers from the IMF's 187 member states, including the G20, met in the US capital hoping to ease a fierce debate between rich and developing countries over trade distorting currency policies.

But any glimmers of hope for a deal were quickly quashed as the United States again complained that China was not moving quickly enough to let its currency rise to a fair market value and Beijing flatly rejected suggestions of rapid reform.

"I certainly don't anticipate there is going to be any unanimous agreement in Washington this weekend about currencies, inflexible currencies and how much they should move," said Canadian Finance Minister Jim Flaherty said.

With the recovery still painfully slow in the United States, Japan and Europe, those powers have called for yuan reform to level the playing field for exports.

As part of a global rebalancing, rapidly growing China is also being asked to shift away from exports to a more domestic-focused economic model.

US Treasury Secretary Timothy Geithner insisted that reform must come more quickly.

"The United States believes that global rebalancing is not progressing as well as needed to avoid threats to the global economic recovery," he told the IMF's 186 other member states, according to a statement.

Geithner added that the solidarity shown in the wake of the global financial crisis was at risk of disappearing as countries like China fail to reform.

"Our initial achievements are at risk of being undermined by the limited extent of progress toward more domestic demand-led growth," he said, "and by the extent of foreign exchange intervention as countries with undervalued currencies lean against appreciation."

European officials have also complained that their exporters were being victimized by an undervalued US dollar and Chinese yuan.

"The euro appears to be too strong today," said the chairman of eurozone finance ministers, Jean-Claude Junker.

"We are not happy with the current real exchange rate of the Chinese currency."

In its latest economic outlook, the IMF said global growth would slow more than previously expected in 2011, as the United States, Europe and Japan continue to struggle and China remains overly dependent on exports.

But China's top central banker on Friday rejected demands for a quick revaluation, declaring that the emerging giant would reform gradually rather than engage in "shock therapy."

Central bank governor Zhou Xiaochuan said the yuan would move gradually toward an "equilibrium" level.

"China will emphasize a package of policies," he said. "Gradualism is good for such a large economy, otherwise it may be dangerous for the larger economy."

China fears a rapidly rising yuan would put Chinese exporters at risk.

Attempting to defuse simmering tensions, IMF chief Dominique Strauss-Kahn said China would not be expected to revalue its currency overnight.

But time may be running out to avoid a full-blown spat.

The US Congress has moved to slap retaliatory sanctions on Chinese goods and Washington has ratcheted up the pressure by hinting that China may not be allowed a bigger say at the IMF unless the currency issue is resolved.

IMF members are locked in discussions about how to reform decision-making at the fund, to give more say to emerging and developing economies.

Meanwhile a host of nations from Japan to Brazil have intervened in markets to keep their currencies competitive sparking fears of more beggar-thy-neighbor policies.

Brazil's finance minister Guido Mantega warned that if the G20 was unable to solve the problem it may call the future of the group into question.

"If we don't face this problem as a group and stop having everyone doing their own thing, we run the risk of the G20 failing."

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