G7 presses for stronger yuan, breaks no new ground
By Brian Love
ISTANBUL, Oct 3 (Reuters) – The Group of Seven rich nations urged China on Saturday to strengthen the yuan, but gave no sign of how it might overcome Chinese resistance to that suggestion or resolve other tensions over global currency rates.
The G7 dominated economic policymaking for two decades, but Saturday’s meeting underlined that it could no longer solve global problems without the cooperation of fast-growing economies in the developing world such as China.
G7 finance ministers and central bankers, in a statement after they met in Istanbul, said Beijing should boost its tightly controlled currency to help correct imbalances in global trade, which have been blamed for fuelling the financial crisis.
“We welcome China’s continued commitment to move to a more flexible exchange rate, which should lead to continued appreciation of the Renminbi in effective terms and help promote more balanced growth in China and in the world economy,” the G7 said.
But China, while insisting it intends eventually to free up the yuan, has kept the currency essentially flat against the dollar since the global financial crisis began worsening in July 2008. The G7 statement’s wording on currency rates was identical to language used when the group last met six months ago.
China showed no sign on Saturday of heeding the G7’s pressure.
“Our exchange rate policy is very clear,” Yi Gang, a Chinese central bank vice governor who was in Istanbul for meetings of the International Monetary Fund, told Reuters. He said the policy would continue to emphasise stability.
Asked whether China had been facing more pressure from other countries to let the yuan appreciate, he said: “We will continue our policy setting.”
The G7 also gave no sign of breaking new ground in resolving tensions among its members over weakness of the dollar, which has depreciated about 12 percent against a trade-weighted basket since March.
France and Canada have expressed concern in recent weeks that a weak dollar could hurt their exports. A G7 official, who declined to be named, said there was heated discussion of this issue in Istanbul.
But Saturday’s G7 statement offered nothing new to allay concern over dollar weakness, merely repeating language used six months ago, that too much volatility in exchange rates tended to threaten economic stability.
The G7, comprising Britain, Canada, France, Germany, Italy, Japan and the United States, has been eclipsed during the financial crisis by the larger Group of 20, which includes rising powers such as China and India.
Meeting in Pittsburgh last month, leaders of the G20 agreed in principle to work towards cutting global imbalances and to tighten financial regulation.
“The G7 is not quite dead, but it is losing its relevance,” the IMF’s managing director, Dominique Strauss-Kahn, was quoted as saying by Emerging Markets magazine. “It’s on its way to extinction.”
Canadian Finance Minister Jim Flaherty said the G7 would keep playing a “pivotal role” in global economic cooperation, and that Canada would host a meeting of top G7 finance officials next February.
But many officials, while saying the group still had a purpose, conceded that its role would have to change as the G20 took the lead in managing the global recovery.
“We have agreed to work on a more informal basis, that we step back to the way it was some years ago, and that we want to try to cut back the schedules for (numbers of) meetings,” German deputy finance minister Joerg Asmussen said.
The G7 stressed that the world’s economic recovery remained vulnerable to setbacks, despite the IMF’s forecasts of growth across much of the G7 and elsewhere in the second half of this year and in 2010.
Poor U.S. economic data earlier in the week cast doubt on the strength of the recovery. The Labor Department announced on Friday that the U.S. unemployment rate rose to a 26-year high of 9.8 percent in September from 9.7 percent in August.
“In recent months we have started to see signs of a global economic recovery and continued improvement in financial market conditions,” the G7 statement said.
“However, there is no room for complacency since the prospects for growth remain fragile and labor market conditions are not yet improving. We will keep in place our support measures until recovery is assured.”
German Bundesbank President Axel Weber said Europe’s biggest economy would take years to recoup the growth lost since gross domestic product started to contract there and in most of Europe in the second quarter of last year.
“We will return around 2013 to the economic level we had 2008,” he told reporters. “Because of the finance crisis, the German growth potential seems to have decreased to around 1 percent compared to around 1.5 percent before.”
British finance minister Alistair Darling said that to avoid future crises, the G20 needed to ensure countries around the world met minimum standards in their financial regulation, so that weakness in one nation could not cause problems for others.
In an interview with Emerging Markets magazine, Darling said the G20 might blacklist countries that had lax regulation and impose sanctions on them, mirroring its crackdown on tax havens, which was launched earlier this year and has already prompted some countries to roll back banking secrecy laws.