Paulson affirmed strong dollar view
WASHINGTON (Reuters) - Treasury Secretary Henry Paulson said on Friday he declared his desire for a strong U.S. dollar to his Group of Seven counterparts, and they reached a "real affirmation" that currency values should be determined in open markets.
"I was very clear -- and it didn't surprise anyone because I've always been clear on this with my colleagues -- that I believe a strong dollar is in our nation's interest and believe that currency values should be determined based upon underlying economic fundamentals in a competitive marketplace," Paulson told a news conference.
He said there was a "clear consensus" regarding currencies reflected in the G7 communique, which urged China to allow the value of the yuan to rise more quickly.
The communique did not mention the value of the dollar, the euro or the Japanese yen.
Paulson said he welcomed an acknowledgement from China central bank governor Wu Xiaoling earlier on Friday that China needed to pursue structural reforms in its economy, saying he believed Beijing was committed to greater flexibility in its yuan currency.
"We welcome the fact that they think flexibility is a good thing and we just are encouraging them to move a bit quicker and it sounds like they agree," he said.
Paulson said the biggest change in the G7 communique regarding China's yuan was to stress that it should allow accelerated yuan appreciation in light of its rising current account surplus and domestic inflation.
Paulson said he told his G7 colleagues that the downturn in the U.S. housing market was still unfolding. "I explained that looking back three months ago, six months ago, there was more optimism that this market would have turned by now. We explained that this was the biggest risk to the U.S. economy."
He said ministers agreed that progress had been made in returning financial markets to normalcy, but there were some markets, such as the non-agency secondary U.S. mortgage market and the asset-backed commercial paper market, that were still not functioning normally.
Paulson said a discussion of sovereign wealth funds reached a consensus that countries operating such investment funds needed to operate under guidelines to ensure more transparency and that they operate strictly for commercial, not political, motives. More transparency could help to allay protectionist fears about funds investing in key assets in some countries, he said.
Some of the G7 ministers, however, said they wanted more reciprocity, calling for actions with sovereign wealth funds to allow more inward investment.
Paulson also urged his colleagues to continue to put financial pressure on Iran to try to prevent the international financial system from "unwittingly" funding its drive to acquire nuclear weapons.
