-- Bank of England Governor Mervyn King is joining Jean-Claude Trichet and Henry Paulson to demand that China allow the yuan to strengthen at a faster pace.
King, usually reluctant to address exchange rates, used his quarterly press conference to warn that China is stoking ``great currency tensions.'' He said the issue will be discussed at this weekend's meeting of officials from the Group of 20 nations near Cape Town. Trichet, head of the European Central Bank, insisted last week that China meet its ``global responsibilities,'' and Treasury Secretary Paulson called Beijing ``out of step with the rest of the world.''
King's remarks reinforce a shift in rhetoric from officials of the largest economies as concern mounts that China isn't shouldering enough of the dollar's slide, garnering an unfair advantage for its exporters. While the yuan has risen about 5 percent against the dollar this year, it has dropped by the same amount against the euro.
``It's a pretty hot topic for all of them now,'' said Dominic White, an economist at ABN Amro Holding NV in London. ``Policy makers were hoping that the currency shifts needed for the rebalancing of the global economy would happen more gradually and over a longer period.''
The dollar has slumped 11 percent against the euro this year, falling to a record of $1.4752 on Nov. 9. It also fell last week to its weakest versus Canada's dollar since that currency was floated in 1950 and declined to a 26-year low against the British pound.
East Meets West
Traveling to Cape Town, Paulson told reporters yesterday the dollar will eventually reflect ``long-term strength'' in the U.S. economy, signaling to trading partners he expects the currency to rebound.
King, Trichet and Paulson will join finance ministers and central bankers from China, India and other emerging economies in Kleinmond, South Africa, on Nov. 17-18 for the G-20's annual meeting. The group will issue a statement on Nov. 18.
Trichet will brief reporters the next day after a separate meeting of central bankers held by the Bank for International Settlements in Cape Town. At his last press briefing in Frankfurt on Nov. 8, Trichet said he opposes ``brutal'' currency moves.
The dollar's slide has accelerated in the past three months as the U.S. housing recession constrained economic growth, encouraging some investors to shift investments into the currencies of faster-growing economies. With China still controlling the yuan's exchange rate more than two years after abandoning a peg to the dollar, money has flooded into other currencies.
Fukuda's Alarm
``China will be a target at the meeting, there is no doubt about that,'' said Stephen Jen, head of currency research at Morgan Stanley in London.
Canada and Europe are each absorbing about a third of the dollar's decline, crimping growth in their economies, a Canadian official said Nov. 13. In Japan, Prime Minister Yasuo Fukuda told the Financial Times in an interview published the same day that the yen is appreciating ``too fast.''
The euro region's trade deficit with China surged 25 percent to 70 billion euros ($102 billion) in the eight months through August, the European Union's statistics office said today.
The refusal of China to allow the yuan to trade freely is ``a major concern and all of us will want to discuss it,'' King told reporters Nov. 14.
`Correct Direction'
For now, China is signaling little willingness to bow to pressure. Central bank Deputy Governor Wu Xiaoling said Oct. 19 China won't hurry to alter its exchange-rate system, saying the country is already ``moving in a correct direction and in a smooth manner.''
European officials may nevertheless up the ante when they travel to China later this month. They will tell their counterparts to allow faster appreciation of the yuan or risk ``triggering protectionist tendencies,'' according to the draft of a confidential briefing document.
Trichet, Luxembourg Prime Minister Jean-Claude Juncker and European Union Commissioner Joaquin Almunia arrive in Beijing on Nov. 27 for two days of talks.
In the absence of assistance from the Chinese, some G-20 officials may ask Paulson to step up his defense of the dollar. Like his four predecessors, Paulson has stuck with former Treasury chief Robert E. Rubin's phrase that a ``strong dollar'' is in the U.S. interest. The language has been repeated whether the dollar is rising or falling.
`Ups and Downs'
Paulson may be willing to say more now. He told reporters yesterday that ``our economy, like any other, goes through ups and downs,'' after last week expressing confidence in the dollar's status as a reserve currency. The six-year expansion will continue, he said yesterday, and growth will ultimately be reflected in the dollar's exchange rate.
The dollar nevertheless remains close to a record low and was worth $1.4621 today.
``The political establishment in Europe and Canada are flagging unhappiness with dollar weakness and we could get more comments like that,'' said Adam Cole, senior currency strategist at RBC Capital Markets Ltd. in London.
G-20 officials will probably also say they're concerned about increasing inflation pressures, which may make it harder for them to end any dollar rout.
European consumer prices rose the most in two years last month, Chinese inflation matched the fastest pace in a decade in October and Australia's central bank on Nov. 12 raised its price forecasts and expects inflation to exceed its target until June.
``Inflation is a concern for policy makers outside of the U.S. and that colors their attitudes to currencies generally,'' said Cole. ``Intervention really only works when it pushes the same way as domestic policy, which it doesn't at the moment.''
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