G7 calls for firmer Chinese currency
The Group of Seven (G7) rich nations urged China at the weekend to strengthen the yuan, but gave no sign of how it might overcome Chinese resistance to that suggestion or resolve other tensions over global currency rates.
G7 finance ministers and central bankers, in a statement after they met in Istanbul, said Beijing should boost its tightly controlled currency to help correct imbalances in global trade, which have been blamed for fuelling the financial crisis.
"We welcome China's continued commitment to move to a more flexible exchange rate, which should lead to continued appreciation of the yuan renminbi in effective terms and help promote more balanced growth in China and in the world economy," the G7 said.
But China, while insisting it intends eventually to free up the yuan, has kept the currency essentially flat against the dollar since the global financial crisis began worsening in July last year. The G7 statement's wording on currency rates was identical to language used when the group last met six months ago.
China has shown no sign of heeding the G7's pressure.
"Our exchange rate policy is very clear," said Yi Gang, a Chinese central bank vice-governor, who attended the International Monetary Fund (IMF) meetings. He said the policy would continue to emphasise stability.
Asked whether China had been facing more pressure from other countries to let the yuan appreciate, he merely said: "We will continue our policy setting."
The G7 also gave no sign of breaking new ground in resolving tensions among its members over the weakness of the dollar, which has depreciated about 12 percent against a trade-weighted basket since March.
France and Canada have expressed concern in recent weeks that a weak dollar could hurt their exports. A G7 official, who declined to be named, said there was heated discussion of this issue in Istanbul.
But the G7 offered nothing new to allay concern over dollar weakness. The grouping said that too much volatility in exchange rates tended to threaten economic stability.
The G7's difficulty in handling currency issues underlined the declining power of the group, which dominated global policy making for decades.
The group, comprising Britain, Canada, France, Germany, Italy, Japan and the US, has been eclipsed during the financial crisis by the larger Group of 20, which includes rising powers such as China and India.
"The G7 is not quite dead, but it is losing its relevance," the IMF's managing director, Dominique Strauss-Kahn, was quoted as saying by Emerging Markets magazine. "It's on its way to extinction."
G7 officials said the group would continue to exist. Canadian Finance Minister Jim Flaherty said the G7 would keep playing a "pivotal role" in global economic co-operation.
But many officials conceded its role would have to change as the G20 took the lead in managing the global recovery.
"We have agreed to work on a more informal basis, that we step back to the way it was some years ago, and that we want to try to cut back the schedules for (numbers of) meetings," said German Deputy Finance Minister Joerg Asmussen