MercoPress. South Atlantic News Agency

G-7 ask China, and Asian nations, to revalue currencies

The G-7 meeting of Finance Ministers and Central Bank presidents in Washington considering actions to reduce global economic imbalances, have asked China and other Asian nations to adopt a more flexible currency system.

"Vigorous action is needed to address global imbalances" said an official release from G-7 insisting on "more flexibility in exchange rates" to help promote a more balanced world growth.

US Treasury Secretary John Snow said that China had had two long years to prepare changes in its financial system.

"With this groundwork in place, China is ready to adopt a more flexible exchange rate", he insisted.

However G-7 was sufficiently cautious as to not push Beijing to the corner since Japan currently faces a diplomatic confrontation with China and is extremely careful not to worsen the situation, and the rest of the group believe the demand is extensive to the other thriving Asian economies.

Greater currency flexibility is seen by G-7 as an efficient tool to encourage other Asian currencies rise against the US dollar and promote domestic demand.

Japan's Finance Minister Sadakazu Tanigaki said China should be left to decide when to change its currency system. Japanese current account surplus has also become a thorny issue for G-7 members.

China's top officials were not present in Washington this weekend but have attended special sessions of the last two G-7 meetings.

Anger at China's unwillingness to revalue or float the renminbi has been building in the US Congress where it is believed that the accumulation of massive foreign exchange reserves by China amounts to an unfair trade subsidy. The renminbi is tied to the US dollar.

Mr. Snow reflecting that feeling said that G-7 had "put a clock" on the required actions by countries to help reduce global imbalances, including reducing the US trade deficit and promoting faster growth in Japan and Europe. Apparently a review of progress will be taking place at the annual meetings of the IMF and World Bank next September.

The latest trade figures from the US show a record trade deficit in February with China having totaled a 13.9 billion US dollars surplus, up 8,3 billion US dollars or 67% compared to the same month in 2004. US trade deficit in February was 61 billion US dollars.

These numbers not only increase the risk of a fall in the US dollar in money markets and a rise in US interest rates but also exacerbate protectionist pressures in United States. US Congress is already considering special tariffs on Chinese textiles.