CHINA - China's pension-fund chief has proposed setting a trading range for the dollar as officials in the fastest-growing major economy fault the US for adopting policies without regard for the American currency's global role.
The world needs a stable dollar, Dai Xianglong, chairman of China's National Council for Social Security Fund and a former head of the nation's central bank, said today at a forum in Beijing. He spoke two days before a Group of 20 summit aimed at addressing global imbalances in trade and investment flows.
Dai's proposal follows charges by Chinese officials that the Federal Reserve's plan to buy $600bn of Treasuries risks inflating asset bubbles in emerging markets. While Treasury Secretary Timothy Geithner said on November 6 the US takes its global responsibilities "very seriously," Fed Chairman Ben Bernanke has said his focus must be on the American economy.
The idea "is unlikely to fly given that the US would like to maintain the flexibility of its currency and the ability to lower its value when it needs to boost exports or inflation, as is the case now," said Dariusz Kowalczyk, a Hong Kong-based senior economist and strategist at Credit Agricole CIB. "Even a range won't be acceptable to the US."
The Dollar Index, which tracks the US currency against six counterparts including the euro and the yen, has tumbled about 13% from a June high even after gains today and over the previous two days.
"I have a piece of advice - can we find a connecting point between the dollar being not just the US local currency, but also being the main international reserve currency?" Dai said. "Say, set a floating range for the dollar exchange rate, a reasonable range, so that everybody can rest assured?"
Also today, the state run Xinhua News Agency said in a commentary that the Fed is "risking the fragile global recovery by following its own track for economic revival." Issuance of the international reserve currency shouldn't be decided by a single central bank, wrote journalists Liu Huan and Wang Jianhua.
The nation's currency regulator said today that it would tighten controls on inflows of speculative capital.
Li Daokui, an academic adviser to China's central bank, said it could be seen as "absurd" that the dollar remains a reserve currency after the financial crisis. He spoke today at a forum in Beijing.
In contrast with some Chinese criticism, President Barack Obama said yesterday that the Fed's mandate is to help the U.S. economy expand, with American growth aiding the world as a whole.
Dai also said today that the U.S. should keep its fiscal deficit to a certain ratio of its gross domestic product. Chinese policy makers including Premier Wen Jiabao have expressed concern that the value of Treasuries may fall amid record American budget deficits. China is the largest overseas holder of US government debt.
A suggestion by Geithner to set targets for current-account surpluses or deficits was rejected by Asian nations, and the US Treasury chief refrained on November 6 from pushing the idea. He said at a press conference in Kyoto, Japan after a meeting of Asia-Pacific Economic Cooperation forum counterparts that current accounts aren't "amenable to limits or targets."
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