G-10 worried over fall in dollar value STELLA DAWSON REUTERS TUESDAY, JANUARY 13, 2004 02:36:57 AM
BASEL: Japan joined Europe today in expressing concern abo ut instability on currency markets in a sign that central bankers of top industrial nations may be nearing agreement to try to slow the dollar’s slide. Central bankers from the world’s richest nations are meeting in the Swiss city of Basel to discuss the impact of the dollar’s tumble on the global economy, plus topics such as a scandal surrounding Italian food group Parmalat and sweeping bank regulatory changes known as Basel II. Some Europeans have said the euro’s gains of more than 20% against the dollar since the start of last year could stifle recovery in the euro zone. Bank of Japan governor Toshihiko Fukui said today that he agreed with policymakers across the globe that currency tensions are a risk. The foreign exchange issue is an unstable factor for each country, he said before a meeting of central bankers from the Group of 10 nations at the Bank of International Settlements. Foreign exchange is seen as a risk factor by policymakers in relation to global imbalance issues, he told reporters, adding that the BOJ held the same view. A source from the Group of Seven industrial nations told Reuters that G7 finance ministers were also likely to discuss global tensions arising from developments in foreign exchange markets at their next meeting in February. Asian countries have played a key role in the euro’s slide. Japan has repeatedly intervened on foreign exchange markets to slow the yen’s rise against the dollar, while China has pegged its yuan against the US currency. This means the euro has born the brunt of the dollar’s decline. But Chinese Central Bank governor Zhou Xiaochuan said that Beijing would be prepared to float the yuan currency after financial reform. This, along with the Japanese comments, are signs that agreement may be reached on tackling the currency issue. Actually the Chinese government and central bank have said we have agreed to gradually reform our exchange rate regimes and our target is that ultimately we will use the floating exchange rate. That is not for today. First we should wait, Zhou told Reuters on the sidelines of the meeting. We need to do some reform in the financial sector and capital account. So logically we should do this step by step. The United States is lobbying China hard to revalue its currency, which US manufacturers say is robbing them of jobs. Asian countries’ market intervention to weaken their currencies has also contributed to the euro’s steep rise. But revaluation of the yuan was not very urgent at this stage, Zhou said, as upward pressure on the currency, which is pegged at about 8.3 to the dollar, was waning. As trade balance changes, the economic situation changes, and the US economy picks up very quickly, it seems things are changing. (Upward pressure on the yuan) is much weaker, Zhou told reporters. Reaching a common understanding among central bankers on developments in foreign exchange markets would lay important groundwork ahead of the G7 session of finance ministers and central bankers who meet on February 7 in Florida. ECB president Jean-Claude Trichet became the first top central banker to raise the warning flag on the dollar’s decline when he said last week that excessive currency movements are unwelcome. Leaders in France, Germany and Belgium also say it could choke off growth in the world’s second largest economic region. Trichet, who is also chairman of the G-10 central bankers group, declined comment on Sunday as he arrived for meetings, as did US Federal Reserve chairman Alan Greenspan. One central banker said any currency discussion at meetings on Sunday focused largely on technical issues, not on risks to global economic output. The Basel II accord, due to be finalised by end-June with sweeping consequences for the banking sector, is also on the agenda and work is progressing, Spanish central bank governor Jaime Caruana said. We are resolving the outstanding issues and... we are making progress, Caruana, head of the Basel Committee on Banking Supervision said. Caruana said comments banks delivered recently to the Basel Committee, charged with rewriting the byzantine rules that govern global banking, had been mostly positive, in sharp contrast to the tone of the last official comment period, when banks lambasted the proposed rules.The Basel Committee on Banking Supervision meets on Wednesday at the BIS to hammer out final changes to the accord. Private sessions also were held at the BIS with commercial bankers, including executives from BNP Paribas, Commerzbank and Citigroup. But they refused to discuss the nature or purpose of the discussions. Some of the world’s biggest banks including Deutsche Bank and Bank of America have been quizzed by regulators concerned about their role in scandal-ridden Italian food group Parmalat.
