–Adds Comments On U.S., China, Forex Cooperation

PARIS (MNI) – The U.S. Federal Reserve is not aiming to drive down
the dollar and it is too simple to see the euro as a victim of currency
wars, ECB Governing Council member Christian Noyer said in an interview
published Thursday.

With an eye on the G20 summit in Korea, the governor of the Bank of
France argued for cooperation among the key economic actors on forex
issues and welcomed China’s measures to strengthen domestic demand.

“The Federal Reserve is certainly not engaged in a policy of
weakening the dollar,” Noyer told the French business daily Les Echos.
“In the United States, inflation is currently weaker than in the
Eurozone, and some economists do not entirely rule out the risk of
deflation.”

“There is an accord within the G7 for the greatest possible
stability on foreign exchange markets: exchange rates should reflect the
fundamental situation of economies and excessive volatility and
disorderly movements must be avoided,” he reminded.

The notion that the euro is a victim of ongoing monetary disorder
“is a simplistic vision,” Noyer cautioned, noting that currencies of
other large industrialized countries and some large emerging economies
in Asia and Latin America are also appreciating.

“The evolution of the euro is an important factor that influences
not only growth in the medium term but also — and more rapidly —
inflation,” Noyer said. “Since its start, the European Central Bank has
taken account of this in its analysis of the risks to price stability in
the Eurozone. The same is true of all the major monetary zones.”

Noyer rejected the term “currency war” as exaggerated, noting that
the cooperation among the G20 members over the past three years had
helped to restore confidence. “We must preserve this goal,” he said.

“The situation is not easy, because the pace of growth varies among
countries,” he explained. “The industrialized countries are emerging
from the crisis more fragile than imagined, with a weak real estate
market in the United States and very large public deficits and debt in
Europe.”

“By contrast, the emerging countries have suffered less and
returned to faster growth rates, which means that the monetary policies
appropriate for some are not for others,” he said. “And that can
encourage capital movements and create volatility on the markets.”

Flexible exchange rates should help dampen the tensions between
more dynamic and less dynamic economies, Noyer noted. “Nevertheless, if
volatility is excessive and movements too abrupt, this creates risks for
the emerging countries: asset price bubbles, too rapid adjustment of
relative prices.”

If measures like a tax on financial transactions or the adjustment
of reserve requirements are insufficient, “then the only solution is
dialogue,” he said. “Together we must seek concerted measures to return
to more balanced global growth by favoring domestic demand in some
countries and dampening it in others.”

Reacting to widespread criticism that the yuan is undervalued,
Noyer again warned against over-simplification: “If one is seeking
strong, lasting global growth, it’s not only exchange rate regimes that
matter — far from it.”

“China insists that economic policies be gradually reoriented to
reduce imbalances,” he said. “Moreover, the Chinese have taken measures
to reinforce the contribution of domestic demand to growth and the
household savings rate in the United States has recovered
significantly,” he noted.

It is entirely legitimate for the G20 to tackle the issue of
exchange rates, Noyer argued.

“It’s one of the elements of what [French] President Nicolas
Sarkozy calls the reform of the international monetary system,” Noyer
said. “Greeted with scepticism six months ago, this proposition has now
become pertinent.”

“The whole architecture of the international monetary system, in
which exchange rates are one element, must be reexamined,” he said.
“This is the job of the G20.”

“I am optimistic that the issue of exchange rates will be taken up
within this group with the same degree of commitment by all its
members,” he concluded. “But it will take a little time.”

–Paris newsroom +331 4271 5540; Email stephen@marketnews.com

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