China Central Bank Adviser Urges U.S. to Put `House in Order'
Jan. 27 (Bloomberg) -- Chinese central bank adviser Yu Yongding said the U.S. government should do more to tackle its record current-account deficit and ease pressure on the country to loosen the yuan's peg to the dollar.
``The U.S. should take the lead in putting its own house in order,'' Yu said in an interview on the sidelines of the annual World Economic Forum meeting in Davos, Switzerland. ``It's the root cause'' of global imbalances. ``China will make its contribution, but the world should not put disproportionate pressure'' on the country.
China, the world's third-largest trading nation, is under pressure from the U.S. to change its decade-long peg to the dollar to help narrow the U.S. trade deficit and ease the U.S. currency's slide against the euro. China will attend the meeting of finance ministers from the G-7 industrial nations in London next week.
German Deputy Finance Minister Caio Koch-Weser today urged President George W. Bush to present a ``credible'' budget next month as the widening U.S. fiscal deficit hampers the outlook for world economic growth. The Bush administration said it expects a record $427 billion budget shortfall this fiscal year.
``I would echo the view of the Europeans,'' said Yu, who sits on the Chinese central bank's monetary-policy committee.
Yu also said China is concerned about the dollar's slide and is prepared to respond if necessary. China had about $610 billion in foreign reserves at the end of 2004, second highest in the world after Japan's $824 billion.
'Responsible Way'
``The Chinese government wants very much to see a stable dollar and will react to the fall of the dollar in a very responsible way,'' said Yu. ``We are very much concerned about devaluation of the dollar and the Chinese foreign-exchange regime.''
In November, China Business News cited Yu as saying that China had cut its holdings of U.S. Treasuries, pushing the dollar lower. Yu later issued a statement calling the report distorted.
The dollar has lost a quarter of its value against the euro in the past two years, dropping to a record $1.3666 on Dec. 30. The euro traded at $1.3044 at 1:45 p.m. in New York.
Some Chinese economists say the country should cut its reliance on dollar reserve holdings. Fan Gang, director of the Beijing-based National Economic Research Institute, said in Davos that China should switch the yuan's peg to the dollar to a basket of currencies including the euro and yen because of instability in the U.S. currency.
The deficit in the U.S. current account, the broadest measure of trade, widened to a record $164.7 billion in the third quarter of 2004.
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