PARIS (MNI) – Global imbalances remain a risk to economic stability
and China’s foreign exchange rate regime is a key source of them,
European Central Bank Governing Council member Christian Noyer suggested
on Wednesday.
“The fundamental problem is global imbalances,” Noyer, who heads
the Bank of France, told the Finance Committee of the French National
Assembly in a discussion of the causes and solutions to the financial
crisis. “If we don’t have to deal with this, we risk one day a brutal
landing of the economy.”
Without the “enormous liquidity” that Asian countries and oil
producers with vast currency reserves poured into bond markets,
long-term interest rates would normally have followed the rise in
central bank rates in the years preceding the crisis, Noyer noted.
In this environment of low rates, the search for a higher return
spurred the development of “extremely complex” securitized products
which were an important element of the ensuing crisis, he reminded.
Another key element was exchange rate parities, notably that of the
Chinese yuan, Noyer indicated, without ever naming the country or its
currency.
“The currency of one of the primary economic zones is acting as if
we were still in Bretton Woods I,” Noyer said, referring to the system
of regulated exchange rates that existed before floating rates were
introduced in the 1970s. “We are in an unstable system and we must
change it.”
–Paris newsroom, +331-42-71-55-40; stephen@marketnews.com
[TOPICS: M$$EC$,MGX$$$,MT$$$$,M$$CR$]
