NANJING, China — Treasury Secretary Timothy Geithner urged China again Thursday to adopt a more flexible exchange rate policy, saying failing to do so could worsen inflation in China and impede growth elsewhere.
In a speech here, Geithner never mentioned China’s currency, the renminbi. But he made clear that Beijing’s strict control over the value of its currency is at odds with flexible exchange rates in other major economies. He said the issue has become “the most important problem to solve in the international monetary system today.”
“It does not require a new treaty, or a new institution,” he said. “It can be achieved by national actions to follow through on the work we have already begun in the G-20 to promote more balanced growth and address excessive imbalances.”
Geithner’s remarks were delivered during a one-day seminar on the international monetary system organized by French President Nicholas Sarkozy, who is serving this year as head of the group of 20 industrial and developed nations. The conference was hosted in Nanjing by a group of Chinese academics.
Sarkozy has promised to use France’s leadership of the G-20 to press for greater reform of the international monetary system. The reforms he has begun to outline are largely aimed at addressing some of the most serious threats to global growth, including large trade imbalances, fluctuating currency values and cross-border capital flows.
But those efforts will probably be hampered by fierce disagreements about how to proceed with reform and how to mediate ongoing economic tensions between the United States and China.
While the United States wants China to overhaul its exchange rate policies and allow the renminbi to appreciate and move in line with market forces, China complains that the United States is damaging its interests by adopting loose fiscal and monetary policies.
The U.S. government, the Chinese argue, would like the Chinese to buy the country’s bonds but seems determined to weaken the dollar’s long-term prospect by adopting loose monetary policies, thereby undermining the value of China’s huge holdings of Treasury bonds.
Other emerging market countries are also worried about whether the dollar is facing a long-term decline, analysts say.
But analysts say China knows it has put itself in a difficult position by closely tying its currency to the dollar and by accumulating huge amounts of dollar-denominated foreign exchange reserves.