China Can Move Faster on Exchange Rates, Treasury's Adams Says

By Andrzej Zwaniecki
Washington File Staff Writer

Washington - China is moving far too cautiously toward a more flexible exchange rate, and its currency practices are constraining other emerging market Asian countries from pursuing a similar goal, a U.S. under secretary of Treasury says.

China and emerging economies with current account surpluses need to move more quickly to more flexible exchange rate regimes, shift emphasis from export-led to consumption-led growth and accelerate the pace of financial-sector reform to help manage an adjustment of global current account imbalances, Timothy Adams said.

His prepared statement was issued April 19 on the eve of the Chinese president’s visit to Washington, which coincides with the April 21-23 meetings of the Group of Seven (G7) most industrialized countries, the International Monetary Fund (IMF) and the World Bank.

Briefing reporters on these meetings, Adams said another group of surplus countries - oil producers - should help advance the adjustment process by increasing investment in production capacity, diversifying their economies and redirecting some petrodollars to oil-consuming economies.

He said the United States is willing to play the role it needs to play in the adjustment process by increasing savings.

But to avoid serious economic consequences, Adams said, more engines of growth must be developed through domestic consumption and other measures in current-account-surplus countries because changes leading to savings in the U.S. economy will restrain U.S. consumption of exports from these countries.

Adams expressed hope that an April 21 IMF conference on global current account imbalances will give countries a better sense of what kind of flexibilities in the global market are essential to an orderly adjustment process of global imbalances.

On another issue, he expressed satisfaction that a more robust IMF role in exchange rate surveillance sought by the Bush administration has been embraced by IMF Managing Director Rodrigo de Rato as part of the IMF fundamental reform.

Another element of this reform - long-discussed changes in the IMF governance structure to strengthen the relative weight of fast-growing emerging economies - is likely to happen in two steps, he said. The first would give a bit more say to large emerging economies that are the most underrepresented in the governing structure; the second would seek broader changes in the voting share distribution and other revisions. The changes in the second phase, likely to begin after the fall IMF meeting in Singapore, must be tied to "tough" deadlines, Adams said. (See related article.)

He said the United States, which Adams said is underrepresented in the governing structure, is willing to consider giving up even more voting shares as part of the broader IMF reform if it means making this institution "more relevant, more credible."

But some countries see the governance reform as a zero-sum game and are not interested in making the "same kind of adjustment we are [willing to do]," Adams said.

The countries that are likely to lose their relative weight in the governing structure, mostly European nations, have resisted deeper reforms, according to news reports.

Adams expressed hope that, with time, the group of countries that understand the need for changes in the IMF governing system will grow.

"We have to put some of our national interest to the side so that we can have an institution for all of us," he said.

For additional information, see The United States and China, U.S.-China Trade and Economic Ties and Trade and Economics.