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Us treasury secretary urges china drop fixed currency { September 2 2003 } Original Source Link: (May no longer be active)
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Snow urges Beijing to drop fixed currency
By David Pilling in Tokyo
Published: September 2 2003 5:00 | Last Updated: September 2 2003 5:00
John Snow, US Treasury secretary, yesterday urged China to abandon its fixed currency regime, arguing that a "functioning financial system is one based on flexible exchange rates determined in competitive markets".
In unexpectedly tough remarks on the eve of a visit to Beijing, Mr Snow said: "We want to be heard on the issue of flexible exchange rates so that American firms [are at] no disadvantage."
His comments on the renminbi, which in effect has been pegged at 8.28 to the dollar since 1995, follow intense pressure from US manufacturers who argue that American jobs are being destroyed by cheap imports from Asia, especially China.
The Treasury secretary is the latest US official to comment on the Chinese currency. In July Alan Greenspan, chairman of the Federal Reserve, suggested that the renminbi would have to be allowed to float, saying the current campaign of intervention to support it was unsustainable.
Beijing has rejected the rhetoric on the renminbi from Washington. Chinese leaders have given little indication that they are willing to float the currency, which some studies estimate could be undervalued by as much as 40 per cent.
Mr Snow admitted that a competitive renminbi "worked both ways" for US industry, given that many of the companies exporting from China were American.
The Treasury secretary did not address the apparent contradiction between his preference for market mechanisms when it came to China and his indulgence of Japan's massive currency intervention. His views on Japan's record intervention, which has seen it sell Y9,000bn ($77bn, €71bn, ?49bn) of currency this year were, he said, a private matter between him and Masajuro Shiokawa, Japan's finance minister.
Mr Snow praised Japan's backing of the US-led invasion of Iraq, adding weight to suggestions that Washington is giving Tokyo an easy ride on intervention because of its support for the war.
However, he added that US manufacturers would benefit from growth in the Japanese economy since this would stimulate demand for imports. Previous Japanese recoveries have been stifled by an appreciating yen.
His comments came as Zembei Mizoguchi, Japan's vice-finance minister, warned that Tokyo stood ready to intervene again as the Japanese currency held near three-month peaks and Japanese government bond prices fell sharply, pushing yields on most maturities to their highest level for more than a year. The 10-year yield exceeded 1.57 per cent for the first time since January 2001.
Last week's data pointing to economic recovery in the US and Japan sent Tokyo's Nikkei 225 Average up 3.2 per cent yesterday, its second-best one-day performance this year. The index is near a 14-month high.
"I am encouraged that Japan's economy is beginning to turn, beginning to show signs of real progress," Mr Snow said.
But he believed the world's three big economic zones could all grow much faster. "As you look around the world whether in Europe, Japan or the US, it is striking that GDP growth is well below potential."
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