Finance officials from the Group of Seven nations — U.S., Japan, Germany, the U.K., France, Italy and Canada — called for China to strengthen its currency against all its major trading partners. What, in fact, they were saying was that China, Asia’s second-largest economy, should to bear a greater burden of the global slowdown. There is little moral logic in this although it might be strategic logic. No one has, as yet, accused China of starting the sub-prime —- dodgy loans — problems in the United States although that may yet come.

G-7 finance ministers and central bankers said in a statement that China should do more to defuse trade tensions by allowing the renminbi to climb at a quicker pace not only against the dollar but also other currencies.

Canadian Finance Minister Jim Flaherty is in a good position to speak on this subject as his country is the U.S.’s largest trading partner, and has seen a 52% gain in its currency against the dollar over the past five years.

Jim Flaherty said, ‘Countries with large surpluses must allow greater flexibility in their exchange rates, and I say this as a finance minister from a country that has played the role of a shock absorber.’

Tim Condon, head of Asian research at ING Groep NV in Singapore, said, ‘I thought China would be under the radar at this meeting given the rapid pace of yuan appreciation that China has been observing this year.’ Adding, ‘I’m a bit surprised by the pressure.”

Former People’s Bank of China Deputy Governor Wu Xiaoling said on Feb. 2 that authorities will tighten credit growth further and make the renminbi more flexible. China’s inflation rate was 6.5% in December, receding from an 11-year high of 6.9% in November.

The G-7 also repeated that ‘excess volatility’ in currencies is ‘undesirable’ and that the group will continue to ‘monitor’ markets closely.

Our illustration shows Chinese Finance Minister Xie Xuren, left, being welcomed by his Japanese counterpart Fukushiro Nukaga prior to the reception dinner for the G7 Finance Ministers and Central Bank Governors.
Source: Bloomberg