STRESA (Italy): European finance officials say any adjustments to China’s fixed exchange rate should be handled with caution, rejecting US calls for an early free float of the yuan.
However, the European Union (EU) agrees with Washington that a stronger yuan was needed to correct China’s enormous trade surplus with both the United States and the EU.
“A shift to a more favourable exchange regime needs to be very carefully planned,” said Wim Duisenberg, the president of the European Central Bank (ECB).
EU finance ministers discussed Asian exchange rates during a two-day meeting that wrapped up at the weekend in this Alpine lake resort.
Their talks came as American lawmakers were threatening tariffs on Chinese imports if Beijing did not take steps towards letting the yuan float freely on world markets. Weak currencies help keep a country’s products cheap on international markets, boosting exports.
European officials said that a too abrupt change could trigger instability in international markets. The yuan has been pegged to the greenback at a narrow range of around 8.28 yuan per US dollar since 1994.
“The discussion has been very misleading in talking about free-floating, for example, which is out of the question,” said Germany’s deputy finance minister Caio Koch-Weser.
The issue of Asian currencies and the trade imbalances blamed on their weakness is due to be discussed in international finance talks this week in Dubai, the United Arab Emirates.
Duisenberg told reporters that the problem was not restricted to China. “Unfortunately, virtually all, if not all, the East Asian nations...have in one way or another pegged their currency to the dollar.”
Last week, the EU’s external relations commissioner, Chris Patten, noted the EU’s 47 billion euros (US$52bil) trade deficit with China was the largest of any trading partner. Among the reasons, he said, was the “painful weakness” of the Chinese yuan.
China’s trade surplus with the United States is running at US$103bil, prompting criticism from President George W. Bush.
During a visit to China this month, US Treasury Secretary John Snow won only a token pledge from Beijing to continue gradually loosening the controls it says are needed to keep its economy growing and its debt-laden banks from collapsing. – AP
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