Prior to the G20 meeting this weekend, the central bank presidents of Brazil and India joined the US in its efforts to pressure China to allow for appreciation of the yuan, which has remained at the same level since 2008. Despite China’s continued insistence that it will not be pressured by external forces to determine timing of yuan appreciation, analysts believe that as more countries unite in asking China to revalue it will become harder for China to resist. See the following article from Money Morning for more on this.
President Barack Obama’s efforts to pressure China to let the yuan appreciate gained momentum Thursday when the central bank presidents of Brazil and India both spoke out against China’s exchange rate policy.
Speaking ahead of a Group of 20 (G20) meeting scheduled for this weekend in Washington, the Indian and Brazilian central bank heads surprised observers when they aligned themselves with Obama in the diplomatic fray surrounding Beijing’s controversial currency stance.
Reserve Bank of India’s Duvvuri Subbarao told reporters in Mumbai that exports from China to India are outpacing Indian shipments of goods to its northern neighbor “and that obviously is a reflection of differences in the exchange-rate management.”
Brazil’s central bank president Henrique Meirelles echoed those sentiments at a senate hearing in Brasilia Thursday saying, “it’s absolutely critical that China appreciate its currency to ensure equilibrium in the global economy.”
Those remarks represent the most forceful statements yet by developing countries about need for a stronger Chinese currency.
U.S. officials are seeking to gain broader support from finance officials at the G20 meetings to pressure China to let the yuan appreciate while they discuss the broader outlook for the world economy this weekend.
“This meeting will be the first test by the U.S. to use a multilateral forum to press China into action on its currency,” Philip Wee, a Singapore-based senior currency economist at DBS Group Holdings Ltd. wrote in a research note obtained by Bloomberg News.
The discussions will include a range of topics including currencies and a communiqué will be released on April 23, an anonymous U.S. Treasury Department official told Bloomberg.
Obama has been under pressure from U.S. lawmakers who say China’s policy gives it an unfair advantage by reducing comparative manufacturing costs, boosting its export market.
China has kept its currency, the yuan, pegged around 6.83 per dollar since July 2008 in order to boost exports during the deepest contraction in trade since World War II.
Speculation that China may scrap the yuan’s peg to the dollar intensified this month after Treasury Secretary Timothy F. Geithner delayed a report that could brand the nation a “currency manipulator.”
Chinese President Hu Jintao told Obama on April 13 in Washington that the country wouldn’t yield to “external pressure” in deciding when to adjust the yuan.
So far, Obama and leaders of other developed economies, including Europe and Japan have led the charge against China’s currency policy. China has been able to deflect those efforts by characterizing them as grousing about the economic problems wrought by their own mismanagement.
The comments from Brazil and India will not be so easily dismissed because they provide new evidence that a number of developing economies also feel that China’s dollar peg is hurting their economies.
Lee Hsien Loong, prime minister of Singapore, chimed in on the debate last week, saying it was “in China’s own interests” with the financial crisis over to have a more flexible exchange rate.
“If the rich and emerging economies are united in asking China to revalue, it would be harder to dismiss the request as an example of superpower arrogance,” Sebastian Mallaby at the Council on Foreign Relations told the Financial Times.
The new pressure on China interrupts a time of relative calm between Beijing and Washington over the issue, since many U.S. officials are assuming China has already decided to abandon its peg with the dollar in the next few weeks.
This article has been republished from Money Morning. You can also view this article at Money Morning, an investment news and analysis site.