Live

Watch CBSN Live

G-7 Presses China On Exchange Rate

Economic officials from the world's richest countries resumed their pressure on China to adopt a more flexible exchange rate and called Saturday for vigorous action against such threats to growth as high oil prices, protectionism and inflation.

Finance ministers and central bank governors from the Group of Seven nations, meeting for the final time this year, singled out China in their closing statement as they warned about excess volatility and disorderly movements in exchange rates.

"We expect that further flexible implementation of China's currency system would improve the functioning and stability of the global economy and the international monetary system," the G-7 said.

The statement was stronger than the group's communique following its September meeting, which welcomed China's decision in July to let its yuan currency trade more freely but stopped short of pressing for further reforms.

European Central Bank President Jean-Claude Trichet, who met with fellow G-7 central bankers Saturday, said their latest comment was "in the continuity of the message that we have been giving."

However, the communique still appeared to fall short of the wishes of some members of the G-7, which includes Britain, the United States, Japan, Italy, Germany, France and Canada.

China allowed the yuan, which had been pegged tightly to the dollar, to rise in value by 2.1 percent in July and said it would let the currency fluctuate by as much as 0.3 percent on a daily basis. However, during the past four months, it has risen by only an additional 0.3 percent, prompting calls from some leaders for a further revaluation.

U.S. Treasury Secretary John Snow said the new system "has operated with too much rigidity."

"This rigidity constrains exchange rate flexibility in the region and thus poses risks to China's economy and the global economy," he said.

Chinese Finance Minister Jin Renqing, who joined the talks at the invitation of Britain Treasury chief Gordon Brown, earlier said he had a "very good meeting" with the G-7 ministers but did not comment on the yuan.

Discussing the overall global economy, the G-7 leaders said growth remains solid, although slowed by high and volatile oil prices that have exacerbated other risks, including "rising protectionist sentiment, the possibility of increasing inflationary pressures and growing global imbalances."

The bloc said some steps already had been taken to address these imbalances but "vigorous, mutually reinforcing action is now needed from the G-7 and other countries in a way that maximizes sustained growth."

The G-7 has also been warning of the dangers of skewed trade and investment since 2003, but this time it did not single out the hefty U.S. trade deficits in its statement.

Federal Reserve Chairman Alan Greenspan, making his 55th and last appearance at a G-7 gathering after 18 years as Fed leader, warned Friday of the threats posed by rising budget deficits and protectionism.


Snow said Saturday the United States recognized it needs "to do more" to reduce its budget deficit, which it cut by some $94 billion this year to $318 billion, but reiterated "the shared burden of addressing global imbalances requires a broader international effort."

The ministers also said the World Trade Organization must make significant progress toward a global trade treaty when it meets in Hong Kong later this month.

Snow said trade liberalization was essential to boost the world economy and alleviate poverty.

"We cannot allow it to fail," said Snow, who urged the European Union and Japan to make "significant moves forward" on agriculture.

Trade negotiators are trying to agree on a binding treaty lowering trade barriers across all sectors. Agriculture has proved a sticking point and the trade round, launched in Doha, Qatar, in 2001, is already well behind an original December 2004 deadline.

The EU has offered to reduce agricultural tariffs — but not as much as other big agricultural producers are demanding, and it wants concessions in other areas, notably service industries and market access for industrial goods.

In an effort to make progress on the trade treaty, Brown invited ministers from India, Brazil, China, South Africa and Russia to join the G-7 countries in talks. The G-7 ministers said in a statement they would also increase trade-related assistance to developing countries to $4 billion a year by 2010.

The ministers also urged the International Monetary Fund to deepen its analysis of economic and exchange rate policy issues and the spillover effects of domestic policies in important economies. Snow said the IMF exchange rate policy advice has "often been too sparing or too muted."

IMF head Rodrigo Rato had earlier waded into the interest rate debate that has divided finance ministers and central bankers following the European Central Bank's decision Thursday to increase rates by a quarter of a percentage point to 2.25 percent. Some European officials had warned that such a move could harm already weak economic growth in the region.

Rato said the IMF does not "see inflationary pressures in Europe right now. We believe monetary policy should stay as it is."

Trichet said the ECB had made its decision to "cope with the inflationary risks that we had identified," adding that while it has no intention of engaging in a series of interest rate rises, it "will do what we have to do in the future as we have in the past to deliver price stability."

The G-7 ministers also pledged to help the Palestinian Authority spur economic development, stressing that it was crucial for lasting peace in the Middle East. Palestinian Finance Minister Salam Fayad said the Palestinians were "facing a big financial crisis which requires an immediate response from the donor countries."

View CBS News In