Currency rift with China exposes US’ lost clout
WASHINGTON: At a private dinner Friday at the Canadian Embassy, finance officials from seven world economic powers focused on the most vexing international economic problem facing the Obama administration.
Over seared scallops and beef tenderloin, Treasury Secretary Timothy F Geithner urged his counterparts from Europe, Canada and Japan to help persuade China to let its currency, the renminbi, rise in value – a crucial element in redressing the trade imbalances that are threatening recovery around the world.
But the next afternoon, the annual meetings of IMF ended with a tepid statement that made only fleeting and indirect references to the currency tensions.
The divergence between the mounting anxieties over Chinese policy and the cautious official response was a striking display of the difficulty of securing international economic cooperation two years after the financial crisis began.
Above all, officials say, the crisis has shifted influence from the richest powers toward Asia and Latin America, whose economies have weathered the recession much better than those of the US, Europe and Japan.
“We have come to the end of a model where seven advanced economies can make decisions for the world without the emerging countries ,” said one European official involved in the weekend talks. “Like it or not, we simply have to accept it.”
The debate over currency valuation is pivotal. World leaders broadly agree that for the global economy to be more stable, imbalances between creditor countries like China and Germany and debtor countries like the US and Britain have to be fixed. Correcting those imbalances, some economists say, will help create jobs in the US and reduce the threat of inflation and asset bubbles in China.
The shifting dynamics have most noticeably affected the US, which pushed more forcefully than its counterparts for stronger pressure on China but has been unable to convince them to stand with it at the forefront of the debate.
In general, the Europeans have taken a far more conciliatory line toward China. French finance minister Christine Lagarde said on Saturday , “It’s not helpful to use bellicose statements when it comes to currency or to trade.”
For one thing, China has moved to deflect criticism of its currency policies by pledging to move at a gradual pace and by pointing to other sources of global imbalances. This leaves Western diplomats struggling to strike the right balance between forceful rhetoric and patient cajoling in pressuring China to act.
Complicating the effort is a dispute between the US and Europe over how to change board representation within IMF to give greater voice to the fast-growing economies that are propelling global growth. The Americans want emerging countries, especially China , to have more representation, and thus take on more responsibility . But Europe is reluctant to give up some of its positions on the board.
And significantly, in the eyes of many countries, the US has lost some of the standing it needs to shape global policy. Not only is Wall Street viewed by many as having initiated the world financial crisis, but also, a number of countries fear that policies by the Fed are pushing down the dollar’s value – the same kind of currency weakening for which the Obama administration has criticised China.
Former World Bank president James D Wolfensohn said each side had a point. “The Chinese have a legitimate case that they have to keep their economy going and that they’re not going to let us run their economy for them,” he said. “On the other hand, we have a legitimate case that China ought to bear its share of the burden and show some leadership.”
(New York Times News Service) |
