Reuters | Sat Jun 19, 2010 | 6:56am IST
The United States pressed China on Friday to move toward a market-based exchange rate, but Beijing said not to meddle with its management of the yuan, setting the stage for a clash at next week’s G20 summit. World leaders gathering in Toronto on June 26-27 are struggling to maintain the crisis-forged unity that has been credited with preventing another Great Depression. Now that the global economy is on the mend, divisions are beginning to show. U.S. President Barack Obama released a letter to his Group of 20 colleagues that zeroed in on prickly policy differences over China’s currency stance and debt-wary Europe’s rush to rein in bulging budget deficits.
Canadian Prime Minister Stephen Harper, who will host the meeting, urged G20 countries to halve their fiscal deficits by 2013 and stabilize debt-to-GDP ratios by 2016, according to an official, who also said China’s currency would be discussed. But China largely took the issue off the table, saying its currency, also known as the renminbi, was its own business. "The RMB is China’s currency, so I don’t think it is an issue that should be discussed internationally," Cui Tiankai, a vice foreign minister who is China’s G20 Sherpa, the official in charge of preparing for the summit, told a news briefing.
Obama, under pressure from some U.S. lawmakers who accuse his administration of soft-pedaling on China, said free-floating currencies were "essential" to global economic activity, a thinly veiled reference to the yuan. "The signals that flexible exchange rates send are necessary to support a strong and balanced global economy," Obama wrote. China has kept the yuan steady at around 6.83 per dollar for almost two years to help its exporters ride out the global financial crisis. Many Western economists believe it is undervalued by as much as 40 percent.
"China’s statement is … absolutely outrageous," said Morris Goldstein, a senior fellow at the Peterson Institute for International Economics in Washington "Where should we be discussing it. At the World Cup?" Obama’s administration has stopped short of accusing China of manipulating its currency to give it a trade advantage, something that some members of the U.S. Congress have urged. The Treasury Department delayed its regular currency report to Congress, which was due in April, angering some legislators who think the administration is dragging its feet. The White House said the world would be "better off" if China had a market-based exchange rate. A spokeswoman said the administration would "take stock" on the issue of the currency report after the G20 meeting.