x Abu Dhabi, UAEWednesday 24 January 2018

Geithner's bid to set G20 trade targets fails to fly

Proposal seen as a thinly veiled attempt to push China into allowing the yuan to appreciate more rapidly fails to convince other finance ministers at South Korean meeting.


Response mixed

US Treasury secretary lacks enough support for proposal at G20

The National staff

GYEONGJU //The US Treasury secretary Timothy Geithner's hopes for a united G20 acceptance of his plans for setting limits on member countries' trade surpluses and deficits were buffeted in South Korea yesterday.

Mr Geithner wrote a letter to the finance ministers of the Group of 20 (G20) leading and emerging economies before they met yesterday, proposing specific targets for trade imbalances as a way of pushing countries with surpluses to adjust their exchange rates.

He was proposing to limit surpluses and deficits on the current account to 4 per cent of GDP, Reuters quoted diplomats as saying amid currency tensions that fuelled fears of a trade war.

The letter was seen as a thinly veiled attempt to push China into allowing the yuan to appreciate more rapidly.

Mr Geithner's proposal received a mixed response. Rainer Bruderle, the German minister of economy, warned against reverting to "planned economy thinking".

The Russian deputy finance minister Dmitry Pankin, whose country has a significant current account surplus, told Reuters government interference was not especially desirable. "In the long term the focus should be on the exchange rates reflecting market conditions. Excessive state interference in currencies should be avoided," he said.

Yoshihiko Noda, Japan's finance minister, expressed doubts about setting actual limits but added "when checking the progress in rectifying imbalances, that might be an idea".

But a French official supported the idea, saying that "when people are talking about currency wars, the merit of Geithner's proposal is that it shifts the discussion back to the macroeconomic framework".

Jim Flaherty, the Canadian finance minister, also found positives in the proposal.

"There's a desire to reach consensus, to be collaborative, to move in the direction of an action plan that we can present to our leaders so that they can adopt it when they meet here in a couple weeks," Mr Flaherty said.

Yesterday was the start of a two-day meeting meant to smooth the path for a G20 summit in Seoul on November 11 and 12.

Beijing, the biggest creditor of the US, has US$2.65 trillion (Dh9.73tn) in foreign exchange reserves. The US House of Representatives has passed a bill threatening retaliation unless China allowed its currency to appreciate to correct its huge trade surplus with the US.

Since China promised to bring more flexibility to its currency in June it has limited gains in the yuan to about 2 per cent, leading other countries to try to control their exchange rates to keep up with the world's largest exporter.

Emerging markets are anxiously watching for signs of further quantitative easing in the US, fearing it will flood its financial system with cash to bolster economic recovery.

Meanwhile, the dollar yesterday headed for its first weekly advance in six weeks against currencies including the euro and yen.

"The market is biding its time waiting to see how this event [Mr Geithner's letter] passes," said Brian Kim, a currency strategist at UBS in Connecticut.

"People will wait for the event risk of the weekend to pass and then start selling the dollar again."

The Dollar Index, which tracks the dollar against the currencies of six major US trading partners including the euro, yen, British pound and Canadian dollar, has increased 0.4 per cent since October 15.

It was the first weekly gain since rising 0.7 per cent in the week that ended on September 10. The Fed is due to decide on monetary policy on November 2 and 3.

* with Reuters and Bloomberg