http://news.ft.com/cms/s/5778d32e-c334-11da-a381-0000779e2340.html
The
European Union will this week urge China to take its time moving towards a more
flexible exchange rate system, rebuffing US calls for Beijing to act quickly to
boost its currency.
European policymakers fear a sharp realignment of the renminbi could cause
exchange rate volatility, leading to the dollar weakening further against the
euro and other EU currencies.
However, lawmakers in the US want China to act quickly to make its exchange
rate system more flexible, helping to increase US exports and cut the trade gap
with China which topped $200bn in 2005.
Transatlantic differences over the issue are expected to surface at a meeting
of EU finance ministers in Vienna on Friday, at which global economic imbalances
will be discussed.
The European Commission, the EU executive, has produced a paper assessing the
effects of renminbi revaluation, which says: “China should introduce greater
exchange rate flexibility in a gradual manner.”
The paper warns that an abrupt de-pegging of the renminbi from the dollar
could cause a sudden reversal of capital flows into the US, which might trigger
additional downward movement of the dollar against the euro. Such a move would
put up the price of European exports to the US, putting at risk one of the
drivers of the EU’s economic recovery.
The issue will also be discussed by Asian finance ministers with their EU
counterparts in Vienna on Saturday.
A spokeswoman for Joaquín Almunia, EU monetary affairs commissioner, played
down suggestions of a transatlantic rift, saying the paper was in line with
previous statements in which Europe had warned that “volatile exchange rates are
not desirable for economic growth”.
Europe, like the US, wants China to put in place measures to increase
domestic consumption in an effort to reduce global imbalances.
The administration of President George W. Bush is under mounting pressure to
take tougher action against China over the value of its currency with the
introduction today of legislation that would all but force the US Treasury to
brand China as a currency manipulator.
The proposal, drafted by Senator Charles Grassley, chairman of the Senate
finance committee, and Max Baucus, the committee’s leading Democrat, would
threaten new sanctions against countries found to have “currency misalignments”
with the US.
If a country was found to have such a misalignment, it would have six months
to move towards resolving it.
The US Treasury has angered many lawmakers by refraining from branding China
a currency manipulator, and over the Bush administration’s diplomatic efforts to
convince Beijing to revalue its currency.