Source: ABC (Australia)
Source type: Radio
Published on: 06 Oct 2010
Summit leaders look to head off currency war
14 October 2014
The finance ministers from the G7 have now agreed to hold an informal meeting in Washington this week to discuss allegations that governments, including China's, are manipulating their currencies to bolster exports.
Chinese premier Wen Jiabao opened ASEM by welcoming the new countries at the table.
"With the joining of Australia, New Zealand and Russia, Asian partners have formed a close-knit community of interests covering the entire Eurasian continent from east to west," he said.
The ASEM summit put the coordination and strengthening of global economic governance at the top of the agenda.
But attempts to pressure China to let its currency rise came to nought.
At the close of the gathering, chairman of the Eurozone finance ministers, Jean-Claude Juncker, said pressure from the European Union had failed to convince China to let the yuan rise on foreign exchange markets.
"China's real effective exchange rate remains undervalued and is thus contributing to misaligned global exchange rate configurations," he said.
Last week, the House of Representatives in Washington voted in favour of a levy on Chinese imports as punishment for the undervaluation of the yuan.
China's premier sidestepped discussion of his currency. In a veiled reference to the issue, speaking through a translator, he called for countries to respect each other's sovereignty.
"We must explore ways to establish a more effective global economic governance system," Mr Wen said.
"We need to improve the decision-making process and mechanisms of the international financial institutions, increase the representation and voice of developing countries, encourage wider participation and fully accommodate each other's interests and concerns."
Belgian prime minister Yves Leterme thought a currency transaction tax might be a way to bring stability to financial markets, while also raising much-needed cash in a crisis for foreign aid.
"Recent expert reports commissioned by the Leading Group on Innovative Financing for Development, of which Belgium is an active member, proposes an international currencies transactions levy which would easily raise up to $US35 billion ($36 billion) annually," he said.
Manipulation
Ms Gillard acknowledged the work that had been done to bring countries closer together in their approaches to economic reform, but she rejected the Belgium prime minister's proposal.
"We're not supportive of putting extra taxes or levies on such transactions," she said.
"That idea, obviously, has been discussed at a series of meetings and events, and I anticipate it will probably be discussed again at the forthcoming G20, but it's not something that we're disposed towards."
The summit concluded that currency manipulation is a threat to global economic growth.
Concerns about the issue have been heightened by the global recession, with many countries relying on a growth in exports to pull them out of their economic malaise.
A weaker currency provides an advantage as it makes a country's exports become more competitive.
Recent manufacturing figures tell the story well, with factory output in Britain, the US, Spain, Ireland and Greece falling sharply, while China experienced a more dramatic rebound in production than economists had expected.
But Malaysia's prime minister, Najib Razak, cautioned against bullying China into change.
"Such discussions should be handled in a very tactful manner, because I don't think the Chinese appreciate any form of pressure against them," he said.
"But it has to be on the basis of engagement to work out a kind of stable currency regime, because any drastic changes will not be good for the financial system."
While the 49 leaders in Brussels were talking about their fears of artificial currency movements, the Bank of Japan returned to zero interest rates for the first time in four years to depress its yen.
Brazil, meanwhile, doubled a tax on foreign investors buying local bonds in order to halt recent rises in its currency.
It was Brazil's finance minister who coined the "international currency war" phrase last week after central banks in Japan, South Korea, Switzerland and Taiwan attempted to lower their currencies.
-From ABC News http://www.abc.net.au/news/stories/2010/10/06/3031185.htm?section=justin
