G7 implores China to allow stronger yuan

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China should allow its currency to rise more quickly in order to help Europe and the US restore some of their industrial competitiveness and limit growing trade deficits, said finance ministers from the world’s seven leading industrialised nations.

Finance ministers from the G7 (Canada, France, Germany, Italy, Japan, the UK and the United States) metexternal  in Washington on 19 October to discuss exchange rates and monetary policy, just as the euro hit another record high of 1.4310 against the dollar. 

The strength of the euro against the dollar and the yuan, whose evolution remains heavily linked to the US currency, represents a source of concern for a number of European countries, including France, because it makes their exports more costly and hurts their economic growth. 

Ahead of the meeting, European business leaders had called for action to halt the dollar’s slide, saying that the euro exchange rate had attained its “pain threshold” for companies (EURACTIV 19/10/07). 

However, while the G7’s final communiqué calls on China to adjust its exchange rate, it fails to make any mention of the dollar’s current weakness. 

The G7 finance ministers said a more rapid appreciation of the yuan would make Chinese goods less competitive and help curb the country’s international trade surplus, while at the same time limit inflationary pressures in the Asian economy thanks to cheaper imports. 

Other than this, they said that the fundamentals of their economies remained strong, although they acknowledged that high oil prices and the recent financial turmoil sparked by the subprime mortgage crisis in the US over the summer were likely to cause a slowdown in global growth (EURACTIV 10/10/07). 

They also agreed to examine the underlying causes of the financial turmoil, in order to identify problem areas as well as possible remedies, notably as regards risk management, valuation of complex financial instruments and the role of credit rating agencies, which have been strongly criticised for their role in the crisis. 

Lastly, the G7 communiqué also calls for more transparency and openness as regards “sovereign wealth funds”, the government-controlled foreign investment funds treated with concern in the EU and the US for fear that they could be used for political rather than economic motives, with takeovers of companies in sensitive sectors such as defence or energy (EURACTIV 24/07/07). 

“We see merit in identifying best practices … in such areas as institutional structure, risk management, transparency and accountability,” the G7 officials said. 

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