–Canada to Support at Washington Calls on China Re Yuan Reform
–Canada Also Wants Fiscal Reforms Implemented in U.S. and World

By Courtney Tower

OTTAWA (MNI) – Canada will join with other so-called advanced
economy countries at international meetings in Washington this weekend
in calling for foreign exchange rate liberalization by China and other
emerging market nations, but feels currencies are not the whole story
that should be addressed.

China’s exchange rate, attacked Wednesday by U.S. Secretary Timothy
Geithner as leading to possible competitive currency devaluations by
countries seeking to improve their exports, should not be the only focus
at Washington meetings of G-7 and G-20 finance ministers and central
bank governors as well as the International Monetary Fund Financial
Committee, a senior Canadian Finance Department official told reporters
Wednesday.

There should also be progress at Washington and by G-20 leaders in
Korea next month on fiscal reforms and on advanced economies getting
their own economies back in better balance, the official said.

The Washington meetings come this weekend amid much talk and strong
language publicly about inflexible exchange rates in China and other
emerging market countries, and possible “currency wars” breaking out,
but other issues need to be discussed in Washington as well, the
official said.

Right at the top of the list, for Canada, should be fiscal reforms
and other measures to get national economies back into more balance, the
official said. There should be progress on what is called fiscal
adjustment, in advanced economies.

Canada, though, is strongly of the view that national currencies,
including China’s, must reflect market forces as a fundamental way to
achieve more demand in emerging market economies for the goods and
services of advanced economies, a needed “rotation of demand.”

He said the Washington meeting should also emphasize countries
meeting commitments already made to reforms that require higher capital
and tougher liquidity provisions of major lending institutions in the
world.

Such reforms should be implemented quickly and effectively, the
official said.

Beyond the first international focus on capital and liquidity
requirements, more safeguards in other areas will be needed but still
have to be discussed further, over the next several months, the official
said.

The Canadian official several times included China in his answers
to questions about exchange rates, saying that the Chinese and other
currencies need to be more reflective of market conditions. That is
fundamental to countries such as China taking more exports from advanced
economies.

The official refused to say whether Canada saw a risk that
competitive evaluations would emerge globally — questioners cited the
recent Japanese devaluation and what they believed is an impending one,
in effect, by the United States. He simply reiterated that currency
changes not based on market conditions distort world trade.

Canada supports greater voting and other power for emerging market
countries in the International Monetary Fund, and the official refused
to entertain any suggestion of linking that to their performance on
exchange rates.

In any event, he said, Canada would not negotiate anything like
that in public. Questioners had cited U.S. Secretary Geithner making
that linkage in a speech Wednesday.

** Market News International Ottawa **

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