Global finance chiefs sought on Friday to put pressure on China to let its currency rise in value to ease global trade imbalances and also aimed to craft a message to soothe turbulent financial markets. Neither prospect appeared highly promising.
The dollar sank to fresh lows and oil prices briefly topped $90 a barrel as Group of Seven finance ministers and central bankers were preparing to meet. Stock prices plummeted around the globe as investors fretted over slowing economic growth.
Citing an anonymous G7 official, Dow Jones news said that a draft of a communique, which will be released in final form on Friday night, explicitly urged Beijing to let its yuan rise more rapidly -- a harder line than the G7 took in April.
The draft did not specifically mention the U.S. dollar, the euro or Japan's yen, but it did repeat a call for the value of all currencies to reflect economic fundamentals. The lack of any language showing concern at the dollar's fall sent the greenback to a fresh low.
Dow Jones said the draft communique repeated boilerplate language that excess currency volatility and disorderly movements were undesirable and said financial market conditions may remain uneven for some time.
Just before G7 ministers sat down for a meeting at the U.S. Treasury, a senior Chinese central bank official said allowing the yuan to rise faster would have only a limited impact on China's huge trade surplus and could hurt the world economy.
Some G7 officials indicated a closing communique would present a united front in sharper calls for China to let its tightly controlled currency rise and hinted a nod to Europe's unease at the euro's soaring value might also be included.
"I expect we'll have more pressure from the other market currency countries (on China), especially with the euro being at a relatively high value now," Canadian Finance Minister Jim Flaherty told Reuters on Thursday.
"I can't anticipate the language ... but I expect it will be a vigorous discussion," he added on Friday.
China has always taken the position -- repeated on Monday by President Hu Jintao -- that it will move gradually and at its own speed on currency and other economic reforms.
While top Chinese officials stayed home for a political congress, deputy central bank governor Wu Xiaoling drove home Hu's message, telling a conference in Washington that China wants to broadly restructure its economy and not focus on exchange-rate policy alone.
ON THE MEND, SLOWLY
The G7 -- the United States, Britain, Canada, France, Germany, Italy and Japan -- are also struggling with the consequences of U.S.-originated credit market turmoil stemming from a crisis in subprime mortgage markets that was exported in the form of widely sold securities based on weak loans.
European Central Bank Governing Council member Axel Weber said before the G7 meeting that there were some signs a potential credit crunch was easing, as did Bank of Japan Governor Toshihiko Fukui, but both were cautious.
With global growth already waning, soaring oil prices added another layer of worry, prompting the White House to say it wanted them to decline and causing unease abroad as well.
"The oil price contains a double risk -- it increases inflation and at the same time slows growth," Europe's Weber said. There were fresh signs on Friday that Europe seemed to be navigating high oil prices and credit market strains relatively well, with Britain reporting rapid third-quarter growth and Germany saying it was suffering no harm from market strains.
European businesses lobbied their finance ministers ahead of the G7 to make clear their concern that a rising value of the euro was endangering their exports and potentially the region's growth.
French officials were particularly vigorous in calling for attention to be paid to the soaring euro, but they won no support from Washington and seemed to have little from other European G7 members.
That left G7 officials pointing at China to take steps to bring about better balance in the world's economy.
Asked what the G7 might say on currencies, British finance minister Alistair Darling said: "There is a mix of views on that subject."
That was apparent in a remark by Italy's Finance Minister Tommaso Padoa-Schioppa, who told reporters: "Europe is a region that has a strong currency and needs to learn to live with the fact."
REGULATION AN ISSUE
The G7 participants were scheduled to hold an "outreach" dinner on Friday night with officials from countries including China, Kuwait and Saudi Arabia that operate so-called sovereign wealth funds whose unregulated and large-scale investment activities make the rest of the world nervous.
That sets the stage for a weekend of sessions between big and small countries when International Monetary Fund and World Bank members hold their semi-annual meetings. A key agenda item is hastening the IMF's shift toward a stiffened surveillance role over currency exchange practices.
The heightened IMF role, sought by both the United States and Europe, should give the IMF a stronger hand in pushing China toward adopting a market-based value for the yuan.
(additional reporting by Yoko Nishikawa, Tamawa Kadoya, Sumeet Desai, Louise Egan, Steven C. Johnson and Paul Eckert in Washington)
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