GYEONGJU, South Korea (MNI) – U.S. Treasury Secretary Timothy
Geithner said countries should avoid using exchange rate policies to
achieve a competitive advantage and that countries with undervalued
currencies should allow their exchange rates to fully adjust.
His comments were delivered in an October 20 letter to his G20
counterparts in which he also argued that advanced members of the
international grouping should work against excessive exchange rate
volatility.
“G20 countries should commit to refrain from exchange rate policies
designed to achieve competitive advanage by either weakening their
currency or preventing appreciation of an undervalued currency,” he said
in the letter, which was distributed to reporters here.
He also said that “G20 emerging market countries with significantly
undervalued currencies and adequate precautionary reserves need to allow
their exchange rates to adjust fully over time to levels consistent with
econonomic fundamentals.”
“G20 advanced countries will work together to ensure against
excessive volatility and disorderly movements in exchange rates,”
Geithner said.
Geithner said countries which are running current account surpluses
should boost domestic demand in general, and private consumption in
particular.
This could be done by introducing tax breaks, Geithner offered.
In turn, countries with deficits should commit to austerity and aim
to boost exports, Geithner said.
He proposed an agreement that would define the size a country’s
trade balance can be in relation to GDP in order to ensure more balanced
global growth ahead. Once this ratio was exceeded, the country in
question would have to adjust domestic policies.
An exception could be made for structurally strong commodity
exporters, Geithner wrote.
–Frankfurt bureau tel.: +49-69-720142. Email: jtreeck@marketnews.com
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