Asian nations told to firm up currencies

The Group of 20 nations called on Asian countries to allow their currencies to appreciate faster as European and Canadian policy makers said their currencies are shouldering too much of the dollar's slide.

"There was a genuine concern on the part of a lot of countries on the turbulence in the currency markets,'' Bank of Canada Governor David Dodge told reporters November 17 after meeting representatives from 20 of the biggest economies in Kleinmond, South Africa. European Central Bank President Jean-Claude Trichet may address the issue at a press conference in Cape Town today.

Officials from the U.S., Europe and Canada have changed their rhetoric after the dollar's drop accelerated over the past three months. Treasury Secretary Henry Paulson signaled Nov. 16 he expects the dollar to rebound, French counterpart Christine Lagarde said yesterday the yuan is causing "tensions'' and Trichet said Nov. 8 he opposes "brutal'' currency moves.

"There's been a lot of international diplomacy in the past few weeks to see if officials can stabilize currency markets a bit,'' said Jim O'Neill, chief global economist at Goldman Sachs Group Inc. in London. "You would expect Trichet to repeat what he's been saying, which is clearly a higher level of warning.''

The G-20 groups the largest developed countries, including the U.S., France and Canada, with emerging-market nations such as China and India.

Trichet is scheduled to speak around 12:30 p.m. in Cape Town. In an interview with South African Broadcasting Corp. yesterday, he reiterated his opposition to "sharp and abrupt'' currency moves.

Greenspan Sanguine Former Federal Reserve Chairman Alan Greenspan is more relaxed, telling a conference yesterday that the dollar's drop hasn't hurt the global economy and is a ``market phenomenon.''

"As the dollar weakness does not create inflation, which is a major concern around the globe for everyone who watches the exchange rate, then I think it's a market phenomenon, which aside from those who travel the world, has no real fundamental economic consequences,'' he told the Learning Annex Wealth Expo in New York.

Slower U.S. economic growth has dulled the allure of U.S. assets, encouraging investors to shift money into the currencies of other economies. With China still controlling its exchange rate two years after abandoning a peg to the dollar, funds are shifting into the euro and the Canadian currency.

The G-20 agreed on the need for ``greater exchange-rate flexibility in a number of surplus countries'' in ``emerging Asia,'' a statement released yesterday said. International Monetary Fund Managing Director Dominique Strauss-Kahn said ``some countries have on their shoulders a much larger part of the adjustment than they should.''

Zhou Reluctant
Chinese central bank Governor Zhou Xiaochuan gave no signs his country plans to cave in to pressure any time soon. While Zhou said in Cape Town yesterday China would consider widening its trading band ``if necessary,'' he gave no timeframe and said he's comfortable with current settings.

Strauss-Kahn said ``different'' views were expressed on the dollar at the meeting because the countries present "don't have the same interest.'' South African Finance Minister Trevor Manuel described the talks as "candid.''

The U.S. currency has dropped about 11 percent so far this year, based on the Federal Reserve's U.S. Trade-Weighted Major Currency Index. It fell this month to its weakest against the euro since the European currency's debut in 1999, to a 26-year low versus the pound and the lowest against Canada's dollar since it was floated in 1950.

Focus at Opec
The dollar's decline took centre stage at a summit of the Organization of Petroleum Exporting Countries in Riyadh this weekend. Saudi Arabia had to fight off an attempt by Iran and Venezuela to get the group to discuss pricing oil in different currencies.

The secretary general of the Gulf Cooperation Council said yesterday Gulf Arab heads of state, most of whose currencies are pegged to the dollar, will discuss a proposal to revalue in December.

Saudi Arabian central bank Governor Hamad Saud al-Sayari, attending the G-20 meeting, said in an interview ``there is no change in policies'' when asked whether his country plans to revalue its currency.

Some officials said they may have underestimated the risks facing the global economy when the Group of Seven major industrialized nations met in Washington last month. Dodge said yesterday that market volatility after the jump in credit costs in August is likely to be more ``prolonged.''

Different Approach
The G-20 also said that ``rising energy and food prices will remain an important source of price pressures'' and central banks ``will need to assess carefully the inflation outlook in light of both tight conditions in commodity markets and the downside risks to growth.''

Policy makers around the world have differed on how to juggle those problems. While the Federal has cut interest rates twice since September to shore up U.S. expansion, policy makers in the 13 euro nations say they are worried about inflation.

That may make it harder for central banks to take concrete action against currency shifts, said Goldman's O'Neill.

``If they don't back up what they are saying with action, what does it really mean?'' he said. ``If the ECB wanted to be really serious about the euro, they need to ultimately back it up with a different stance on monetary policy.''