 | |  | | US's Snow claims G7 ministers backed his forex view
22 September 2003
DUBAI: US Treasury Secretary John Snow claimed a win yesterday in his campaign to make flexible currency rates a global standard as key industrial nations agreed trade benefits from less government involvement.
A closing statement from a meeting of the Group of Seven finance ministers – the United States, Britain, Canada, France, Germany, Italy and Japan – said a flexible currency rate "is desirable for major countries or economic areas" in order to let markets smooth out economic ups-and downs.
The groundbreaking commitment was clearly aimed at showing disapproval of countries that use pegged currency rates, or that intervene heavily in markets to affect their currency's values, in order to keep their export prices low.
Snow travelled through Asia earlier this month, making the same case virtually word-for-word in a trip to Japan, China and Thailand that was seen as a bid to pressure China into letting its yuan currency trade beyond its current decade-old peg of about 8.28 yuan to the US dollar.
Snow left no doubt he was satisfied by the inclusion of the language endorsing free-market forces – in keeping with the Bush administration's conservative Republican party philosophy.
"I expressed my long-held view that the world trading system works best under a regime with market-based exchange rates," Snow said. "I was pleased the communique reflected this view."
Currencies were the hot topic at the Dubai meeting, with fierce interest in whether a US campaign to push China into allowing its yuan currency to appreciate would prevail at the Saturday session.
Later, Snow turned aside a question whether there was a risk that, if China complied, its economy might be destabilised if it caused sharp fluctuations that strained the country's enfeebled banking system.
"I think it is understood banking reform, working through bad loans and infrastructure problems, need to be addressed in conjunction with moving to a system of flexible exchange rates," Snow said.
At a later session with reporters, Snow was asked whether Japan – which has spent heavily this year to intervene in currency markets in order to keep the yen's value down – had any objection to call for more influence from market forces.
Snow said Japan had in fact been "very supportive" and insisted, "We're not singling anybody out. . .we have a universal policy."
US manufacturers have mounted a vigorous lobbying campaign claiming China manipulates its currency, a message heeded by the Bush administration with next year's presidential elections on the horizon.
Snow repeated his refrain that the United States cannot be "the sole engine of world growth" and said the performance of Asian and European economies "is simply not what it could be."
He said they needed to do more to introduce "fundamental structural reforms" to swiftly boost their economies and spur domestic growth in order to bolster the world economy.
The US Treasury chief said he also urged other G7 countries to pitch in generously to help rebuild Iraq and Afghanistan – a topic the rich countries were to follow up on Sunday at a donors' conference aimed at Afghanistan.
He promised the United States would continue to provide aid to the Palestinian Authority to make sure it can function as a government, saying this would serve the cause of peace in the troubled Middle East region where Palestinians and Israelis have been engaged in escalating violence.
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