US Treasury Secretary Timothy F Geithner’s shot to end the “currency war” by pushing for targets to shrink current-account gaps risks failing over the complexity of shifting trade and investment flows.
Geithner may use a November 5-6 meeting of Asia-Pacific Economic Cooperation (APEC) forum counterparts in Kyoto, Japan, to press his case for current-account deficit or surplus targets of less than 4 per cent of gross domestic product. The issue will also likely feature at a Group of 20 summit in Seoul next week.
The United States has cited a glut of Asian savings for helping spark the credit crisis earlier this decade, while Asian officials now counter it’s the American central bank’s liquidity injections that are warping global capital flows. Geithner’s initiative is undermined by disagreements over the causes of the imbalances and the failure of similar efforts in the past.
“With the US wanting China to make the yuan more flexible and having limited success with it, the current-account discussions will be an indirect approach” that may work better, said Tomo Kinoshita, deputy head of Asia economics research at Nomura Holdings Inc in Hong Kong. The challenge is that “a concrete agreement on current-account targets will be difficult to achieve.”
Geithner’s plan was in part designed to broaden discussions beyond China’s exchange-rate policy.