♠ Posted by Emmanuel in Currencies
at 11/06/2010 10:03:00 AM
OK, so this series of stories on Federal Reserve quantitative easing is getting [1, 2, 3, 4] slightly excessive, but I just had to post about this fascinating grab bag from Reuters on how the rest of the world is apparently not very happy about US monetary policies--especially the announced $600 billion additional central bank purchases of Treasury bills to mid-2011. The prize quote, of course is China complaining of American 'central planning' [!]--this from a country that has strict capital and foreign exchange controls and is still considered a 'non-market economy' by the US to the PRC's chagrin. That's entertainment as Chinese bellyaching about the US often passes into the realm of over-the-top hyperbole, although we should of course note that any number of G-20 members are unhappy about American go-it-alone actions as well.In the immortal words of the late, great Telly Savalas, perhaps it's time the US asked of itself, 'Who Loves Ya, Baby?' With the upcoming G-20 leader's summit in South Korea just days away, let's say our American friends have a lot of explaining to do:
Global anger at a fresh round of liquidity injections into the U.S. economy swelled on Friday as Germany called the move "clueless" and emerging nations protested that it will wreak havoc on them...Needless to say, I particularly enjoy this analogy of current account limits to manipulating one's exchange rate as something the PRC doesn't want to do. [Okey-dokey, if you say so...] Perhaps because it is hosting the G-20 this year, the South Koreans are obliged to be--outwardly--at least more, ah, accommodative of American 'friendly fire', though I of course don't expect anything to come out of this process of non-binding commitments:
China landed its own blows by saying a U.S. proposal for numerical targets for surpluses and deficits -- akin to a range for yuan appreciation -- smacked of outmoded central planning that won't win any friends for the United States. Chinese Vice-Foreign Minister Cui Tiankai, who is China's chief G20 negotiator, told a news briefing that he was also worried at the prospect of a flood of money pouring into global markets in search of higher yields. "They owe us some explanation," Cui said. "I've seen much concern about the impact of this policy on financial stability in other countries."
A "common theme" is emerging that "excess liquidity in the U.S. is creating problems in other countries," Brazil's Central Bank Governor Henrique Meirelles told reporters in Chicago. Resentment abroad stems from worry that Fed pump-priming will hasten the U.S. dollar's slide and cause their currencies to shoot up in value, setting the stage for asset bubbles and making a future burst of inflation more likely.
"With all due respect, U.S. policy is clueless," German Finance Minister Wolfgang Schaeuble told a conference. "(The problem) is not a shortage of liquidity. It's not that the Americans haven't pumped enough liquidity into the market, and now to say let's pump more into the market is not going to solve their problems"...German Chancellor Angela Merkel will address U.S. policy in Group of 20 discussions on exchange rates, a government source said, adding that she shared Schaeuble's criticism.
Policymakers from the world's new economic powerhouses in Latin America and Asia have said they would consider fresh steps to curb capital inflows after the Fed's move...South African Finance Minister Pravin Gordhan said Fed policy "undermines the spirit of multilateral cooperation" that the G20 had sought to achieve. The money will find its way into financial markets of emerging nations with potentially devastating impact on their exports, he charged...
Efforts to reduce imbalances that are destabilizing the global economy will top the agenda of the Nov. 11-12 summit of the Group of 20 forum of leading economies in Seoul. China and Germany oppose a plan floated by U.S. Treasury Secretary Timothy Geithner last month to cap current account surpluses and deficits at 4 percent of gross domestic product. "
Of course, we hope to see more balanced current accounts," Chinese Vice-Foreign Minister Cui Tiankai told a news briefing. "But we believe it would not be a good approach to single out this issue and focus all attention on it. The artificial setting of a numerical target cannot but remind us of the days of planned economies." Cui, China's chief G20 negotiator, also rejected any attempt to set target ranges for the yuan to appreciate. "That would indeed be asking us to manipulate the ... exchange rate, and it is something that we will of course not do," Cui said.
South Korea had hoped to make development issues the focus of the G-20 summit but those plans were overtaken by currency battles—and successful U.S. efforts to focus the meeting on Chinese foreign-exchange practices. Mr. Lee said he was optimistic for the summit but some G-20 negotiators outside the U.S. have been frustrated by the turn of events.Ditto for the Canadians, so I guess it's who loves ya baby, eh?
The most attention has focused on a joint Korean-U.S. plan to limit the trade surpluses and deficits that underlie and reflect currency movements. At a G-20 finance ministers meeting late last month, the group agreed to adopt "indicative guidelines" of what constitutes an over-the-top deficit or surplus....The International Monetary Fund would play umpire and name countries that didn't meet the standard. The U.S. is pushing the group to limit surpluses at 4% of gross domestic product, a standard Washington believes would prompt China to let its currency rise further.
Any deal, President Lee said, wouldn't be enforceable in the way, say, trade decisions are enforced by the World Trade Organization, which can authorize trade sanctions against losing parties. "There aren't any legal obligations," Mr. Lee said. But he said the months of discussion among G-20 countries would produce "a peer-pressure kind of effect on these countries" that violated the deal. "There is a common understanding that if we do not work among ourselves, we fear we will return to protectionist measures" that will harm all G-20 nations, said Mr. Lee...
Mr. Lee said the recent U.S. Federal Reserve decision to buy long-term government securities "will have an effect on foreign-exchange rates around the world." But he said he didn't believe the U.S. was pursuing a strategy of competitive devaluation. "It was more in line with the urgency they were feeling within the U.S. [about] the very slow pace of the recovery...It's very important not only for Korea, but for countries around the world, to have a very healthy and robust U.S. economy," he said.
