US Treasury Secretary Timothy F Geithner refrained from pushing for current-account targets and China hailed the potential effect of Federal Reserve easing at a finance ministers’ meeting days before the Group of 20 summit.
The Fed’s move to buy $600 billion of Treasuries could contribute “tremendously” to global growth, Vice Finance Minister Wang Jun said after Asia-Pacific Economic Cooperation (APEC) forum finance chiefs met in Kyoto, Japan, on November 6. At the same gathering, Geithner said current-account deficits or surpluses aren’t “something that is amenable to limits or targets”.
Policy makers from Asia to South America have warned that the Fed’s decision to pump liquidity into the US will depress the dollar and spark flows of capital to emerging markets that threaten asset-price bubbles. China’s Vice Foreign Minister Cui Tiankai said on November 5 the US step may hurt global confidence, while rejecting state-planning style targets for trade deficits.
“It looked like there was going to be quite a lot of conflict or lack of agreement going into the G-20 but this suggests there may be a bit more accord,” said Mitul Kotecha, head of global foreign-exchange strategy at Credit Agricole CIB in Hong Kong. “There is some toning down of the rhetoric on the Fed’s policy but in return, the US will be looked upon to tone down” its push to shrink trade and investment imbalances.
Summit agenda
Geithner said G-20 leaders, who meet in Seoul on November 11-12, are poised to approve last month’s agreement among finance ministers to avoid long-term current account surpluses or deficits, “assessed against indicative guidelines to be agreed”. The G-20 includes the largest developed and emerging nations, from the US and Germany to Japan, China, India and Brazil.
While the Treasury chief said last month that 4 per cent of gross domestic product was “likely to emerge as the basic benchmark countries look to,” he refrained from repeating that guideline in Kyoto. He instead noted policy makers have tried to address persistent trade and investment imbalances since the 1940s, and “it’s a process that’s going to take some time”.
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China’s response to the Fed’s quantitative easing continued today, with Vice Finance Minister Zhu Guangyao saying it will provide a “shock” to the global economy and increase “hot money” flows to emerging economies. Zhu told reporters in Beijing the US hasn’t “fully realised” the possible impact of the policy, which China hopes will help the global economy.
US responsibility
In Kyoto, Wang highlighted language in the APEC finance chiefs’ statement that nations with reserve currencies must be “vigilant against excess volatility disorderly movements”. The dollar has a majority of global foreign-exchange reserves, according to the International Monetary Fund.
“We pay close attention to the US quantitative easing policy,” Wang said two days ago. “Quantitative easing policy that’s aimed at boosting the US economy will help the revival of the global economy tremendously.”