MercoPress. South Atlantic News Agency

Geithner promises Brazil it won’t allow the US dollar to weaken

Treasury Secretary says the US wants a strong dollar, downplays impact of Federal Reserve easy-money policy

US Treasury Secretary Timothy Geithner told Brazil’s Finance Minister Guido Mantega that the Obama administration won’t allow the US dollar to weaken, Mantega said.

Mantega said he and Geithner agreed to act jointly with the Group of 20 nations to find a solution for the dollar’s depreciation. Geithner also said in a telephone conversation that the impact of Federal Reserve policies is being “overestimated,” Mantega told reporters in Brasilia Thursday.

“He said he doesn’t intend to allow a devaluation of the dollar,” Mantega said. “He assured me that the policy is not to weaken the dollar, but on the contrary, to strengthen it.

“I then asked him about the Fed’s policy and he said that this policy’s impact is being overestimated,” Mantega said.

Brazil’s finance minister said he told Geithner that a firm stance by the US against further weakening in the dollar would “create conditions to open a negotiation” with other countries seeking to reduce volatility in their currencies, and may help reduce pressure on China to strengthen the Yuan.

“Otherwise it’s hard, to weaken the dollar and to want a revaluation of the Yuan,” Mantega said.

G-20 policy makers are convening in South Korea amid concern countries are pursuing weaker exchange rates as a route to stronger economic growth, either by selling their own currencies or by discussing monetary easing, as the U.S. and U.K. have done. The moves risk a protectionist backlash that curbs global growth, with emerging markets including Brazil and South Korea already stiffening capital controls to stem the rise of their currencies.

Massive amounts of dollars are flowing into emerging markets in search of higher returns, leading to what Mantega has called a “currency war.” Brazil on Oct. 18 raised to 6% from 4% a tax on some foreign investments and yesterday closed a tax loophole in the country’s derivatives market in a bid to stem the inflow of dollars.

Geithner said Oct. 18 that “no country can devalue its way to prosperity” and the US will “work very hard to make sure that we preserve confidence in a strong dollar.”

The Brazilian real has gained 36% against the US dollar since the end of 2008.