US presses China to implement yuan reforms

The United States pressed China Saturday to make progress on its recently announced currency reform to make the yuan more flexible, calling it key to healthy global economic growth. US Treasury Secretary Timothy Geithner said that despite global trade imbalances being lower than levels before the 2008 financial crisis, further action was needed to guard against renewed unsustainable imbalances. "China's recent decision to widen the daily trading band for its exchange rate, if implemented in a way that allows the value of the exchange rate to reflect market forces, could contribute to this rebalancing," Geithner said in a statement. "While we welcome the progress to date, the process of correcting the misalignment of China's exchange rate remains incomplete and further appreciation is necessary, and in China's interest." The US Treasury chief had shown more enthusiasm about China's yuan decision at a Brookings Institution event on Wednesday, calling it "very significant and very promising." Geithner's remarks were part of his prepared statement to the IMF's steering body, the International Monetary and Financial Committee, at the IMF-World Bank spring meetings in Washington. Geithner said that while countries with trade deficits have worked to raise domestic savings, those with trade surpluses, such as China, still lacked sufficient domestic consumption. "The global economy and job creation are being hindered by insufficient aggregate demand growth. We therefore need to see stronger acceleration of growth in domestic demand in current account surplus economies, as well as greater exchange rate flexibility in countries such as China," he said. Beijing's trading partners have long criticized the yuan exchange rate, saying it is kept artificially low to fuel a flow of cheap Chinese exports, triggering huge trade deficits in the United States and Europe. The Chinese central bank recently announced it would allow the yuan to fluctuate against the dollar by 1.0 percent on either side of a trading band. The yuan was previously allowed to move just 0.5 percent either side, which helped keep it closely tied to the movements of the US greenback. Geithner said the International Monetary Fund should emphasize the importance of exchange rate flexibility and macroeconomic policies as the "first line of defense" in responding to surges in capital flows. The Treasury secretary also highlighted Europe's important steps recently to strengthen its response to the eurozone debt crisis. "The success of the next phase of the crisis response will hinge on Europe's willingness and ability, together with the European Central Bank, to apply its tools and processes creatively, flexibly and aggressively to support countries as they implement reforms and stay ahead of markets," he said. Regarding Europe's debt crisis, the most pressing short-term risk to global growth, Geithner said that President Barack Obama's administration welcomed pledges by some IMF members to contribute to the lender's crisis fund. IMF chief Christine Lagarde announced Friday that more than $430 billion had been committed to the "global firewall." Geithner repeatedly has said the US would not contribute because wealthy Europe had enough resources to manage its own problems. "The IMF can and should play a complementary role in a comprehensive and well-designed European response," he told the IMF panel. "The IMF has substantial capacity to play its systemic role in the global economy and thus help address, if necessary, the effects of the European crisis on the rest of the world."