Geithner at G20 calls for more flexible forex policies

NANJING, China, March 31, 2011 (AFP) - US Treasury Secretary Timothy Geithner on Thursday called for more flexible exchange rate policies at a Group of 20 meeting in China, saying it was crucial to global monetary system reform.

Geithner did not explicitly single out China in his remarks at a G20 seminar on international monetary reform attended by ministers and central bankers, but hinted that Beijing needed to loosen its grip on the yuan.

He said that to better manage sweeping global economic change, nations must build "flexible exchange rate policies that can help countries better absorb shocks" in the future, according to a copy of his remarks.

"The most compelling gaps in the present system are the weaknesses and inconsistencies in the approaches that govern exchange rate policy and the use of capital controls," Geithner said.

He explained while most major emerging countries operate "largely flexible" exchange rate regimes, some "run tightly managed exchange rate regimes with very extensive capital controls" -- an obvious reference to China.

Chinese President Hu Jintao (R) shakes hands with former French prime minister Jean-Pierre Raffarin (L) as French counterpart Nicolas Sarkozy (2R) and French Finance and Economy Minister Christine Lagarde (2L) look on as they meet for a working meeting at the Great Hall of the People in Beijing on March 30, 2011. Sarkozy arrived in China on March 30 at the start of an Asian mini-tour that will include a G20 seminar on the world monetary system and a stop in disaster-struck Japan. AFP

While Geithner said this situation was "starting to change", he outlined the problems caused by the divide.

"This asymmetry in exchange rate policies creates a lot of tension," Geithner said, noting that it "magnifies upward pressure" in emerging markets with flexible exchange rates and "intensifies inflation risk in those emerging economies with undervalued exchange rates".

The US treasury secretary called the exchange rate situation "the most important problem to solve in the international monetary system today".

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