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U.S.'s Kimmitt Says China Must Accelerate Yuan Reform (Update2)
By Gemma Daley
Nov. 17 (Bloomberg) -- China needs to ``accelerate the movement'' of its exchange rate reform, said Robert Kimmitt, deputy secretary at the U.S. Treasury.
Kimmitt said he will discuss currencies in a meeting with People's Bank of China Governor Zhou Xiaochuan, on the sidelines of the annual summit of the world's 20 largest economies in Melbourne on Nov. 18-19.
``We believe the Chinese need to accelerate the movement of their exchange rate to reflect underlying market conditions,'' Kimmitt told reporters in Melbourne today. ``I will be meeting with the China central bank governor and I would expect that issue will come up.''
China is under pressure to allow its currency to gain faster as European and U.S. officials claim the Asian nation keeps the yuan undervalued to promote exports, which accounted for about 35 percent of growth last year. The yuan has advanced 3 percent since China ended its link to the U.S. currency in July 2005.
When asked about whether about currencies, such as the yuan and Japan's yen, will be talked about at the Group of 20 meeting, Kimmitt said that ``what will come up in discussion this weekend is the fact that the whole economy works best on the basis of free and fair trade, flexible exchange rates determined by the market place and the free flow of capital across borders.''
Japan's Yen
Kimmitt's comments raised speculation weakness in the yen will be discussed, said Minoru Shioiri at Mitsubishi UFJ Securities Co. The U.S., European Union, China and Japan are among nations at the G-20 talks.
``The yen is weak even among Asian currencies and some European officials have been complaining about it,'' said Shioiri, senior manager of the credit and foreign-exchange trading division in Tokyo. ``Speculation is that should China be encouraged to accelerate currency reform, the yen issue could also be raised. That led to some yen buying.''
Japan's currency was at 118.31 per dollar as of 7:56 a.m. in London from as low as 118.47, compared with 118.21 late yesterday in New York. It traded at 151.23 per euro, from 151.26.
The U.S. is seeking ways to ``raise its economic dialogue with China to a strategic level,'' Kimmitt also said. Kimmitt said Treasury Secretary Henry Paulson would ``be heading this strategic economic dialogue.''
The U.S. trade deficit with China rose to $166.3 billion in the first nine months of this year, putting it on a pace to exceed last year's record $201.6 billion by more than 9 percent.
People's Bank of China Deputy Governor Wu Xiaoling said yesterday the central bank will ``steadily advance'' its currency reforms and that companies and households have gradually adapted to a floating exchange rate.
China's central bank calculates a daily rate by taking a weighted average of quotes from commercial banks designated to act as market makers in the currency. The yuan is allowed to trade by up to 0.3 percent against the dollar either side of the so-called central parity rate