Geithner: inflexible currencies are biggest monetary problem

NANJING, China Thu Mar 31, 2011 2:22am EDT

U.S. Secretary of Treasury Timothy Geithner (L) speaks with Chinese Vice Premier Wang Qishan before having lunch on the sidelines of the G20 High Level Seminar on the international monetary system, in Nanjing March 31, 2011. REUTERS/Nelson Ching/Pool

U.S. Secretary of Treasury Timothy Geithner (L) speaks with Chinese Vice Premier Wang Qishan before having lunch on the sidelines of the G20 High Level Seminar on the international monetary system, in Nanjing March 31, 2011.

Credit: Reuters/Nelson Ching/Pool

NANJING, China (Reuters) - Tightly controlled exchange rate regimes are the main flaw in the international monetary system and the solution is simple, U.S. Treasury Secretary Timothy Geithner told a G20 meeting on Thursday.

In a thinly veiled swipe at the Chinese hosts of the seminar of the Group of 20 wealthy and developing economies, Geithner said that countries should have flexible exchange rates and permit free flows of capital to be major players in the global currency order.

He also used his speech to call for a stronger International Monetary Fund and to defend U.S. policies, acknowledging that past failures had caused much damage but saying the government was aiming to stabilize debt levels to avoid future problems.

The G20 seminar was spear-headed by France, which is pushing a bold reform agenda in its year-long presidency of the group, and was meant to be focused on ills in the monetary system.

Geithner offered a straightforward diagnosis. While major currencies moved freely and most emerging economies were well along that path, there were still some with little exchange rate flexibility and extensive capital controls, he said.

This asymmetry fueled inflation risks in the economies whose exchange rates are undervalued, magnified currency appreciation in others and also generated protectionist pressures, he added.

"This is the most important problem to solve in the international monetary system today. But it is not a complicated problem to solve," he said, according to the prepared text of his remarks.

"It does not require a new treaty, or a new institution. It can be achieved by national actions," he added.

Although Geithner did not mention China by name, the United States has long called on Beijing to let its currency rise more quickly, accusing it of keeping its exchange rate artificially cheap to give its exporters an unfair advantage.

In recent months, Geithner has taken to casting the Chinese currency as a broader global problem, saying that it is making life difficult for other developing economies. India and Brazil, among others, have agreed, saying that a cheap yuan has undermined their competitiveness.

The Chinese government told countries attending the G20 seminar in the eastern city of Nanjing not to mention specific currencies in their speeches and to keep their focus on broader questions in the global monetary system, according to a source attending the meeting.

PLAN FOR CHANGE

While saying that national governments held the key to reform in their own hands, Geithner called for a stronger International Monetary Fund to shine a spotlight on risks.

"We would also support giving the IMF a greater capacity to help influence the policy choices made by the major economies, including greater independence to publish its analysis," he said.

The IMF should be able to make recommendations for how to preempt the emergence of large imbalances in the global economy, he said.

On the Special Drawing Right (SDR), the IMF's unit account that France and China believe should take on a bigger role in the international monetary system, Geithner was clear.

Both French President Nicolas Sarkozy and Chinese officials have said it is time to consider bringing the yuan into the basket of currencies that constitutes the SDR, which is currently restricted to the dollar, euro, yen and pound. Geithner suggested that certain conditions should be met first.

"We believe that currencies of large economies heavily used in international trade and financial transactions should become part of the SDR basket, and that to achieve this objective, the concerned countries should have flexible exchange rate systems, independent central banks, and permit the free movement of capital flows," he said.

Emphasizing that solutions to the global monetary system's problems rest at the national level, Geithner said the United States had made progress in fixing the policy mistakes that caused damage in the global financial crisis but still had work to do.

"We are committed to ... fiscal reforms that will reduce deficits as a share of the economy to three percent over the next several years so that we stabilize the ratio of debt to GDP at a level that will not threaten future economic growth," he said.

(Reporting by Simon Rabinovitch; Editing by Ken Wills)

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Comments (16)
finfollower wrote:
What Mr. Geithner neglected to mention was the “stablization of the debt” refers only to the yearly deficit, not the national debt which is set to overtake GDP this year. (US National Debt will reach 15.2 trillion by September, equaling the projected US yearly GDP). The US economy would have to grow at a ten percent rate to keep pace with projected deficits over the next few years.

While the non-floating currencies are a problem, the bigger elephant in the room is the FED which has seen it’s portfolio rise from 1 to 3 Trillion dollars in the past three years in a misguided attempt to “save” the economy. Add on top the complete abandonment of any accurate valuations for mortgages and the utter nonsupervision of financial products that allowed for multiples of risk and you have a situation which remains dire.

Mortgages are not marked to reality, they are marked to what “they could be worth four years ago”. The Treasury and the FED have colluded in propping up a market that should have corrected long ago and in the process, price discovery is occuring as the air begins to leak out of the bubble. Preventing the banks from taking their medicine in 2008 and since is only making the eventual correction that much more serious.

Mar 31, 2011 9:12am EDT  --  Report as abuse
This guy couldn’t get his taxes right. His idea of a flexible currency is the kind you roll into a cigar and light up.

The cure for what ails our monetary system is a flexible currency in the form of a yellow metal.

Our treasury secretary and head of the federal reserve make “dumb and dumber” look like Newton & Einstein.

Mar 31, 2011 10:13am EDT  --  Report as abuse
antonius2618 wrote:
“It does not require a new treaty, or a new institution. It can be achieved by national actions,” he added.

===========================================

Just like the PRIVATE anking cartel known as the Fed started. DON’T BELIEVE THE HYPE!!!

Mar 31, 2011 10:18am EDT  --  Report as abuse
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