G-7 Finance Chiefs Campaign for ‘Strong Dollar’ Before Meeting
Finance ministers from the Group of Seven meet in Istanbul today pushing for a “strong dollar” amid concern its slide will impede their recoveries from the deepest global recession in the postwar era.
“Everyone needs a strong dollar,” French Finance Minister Christine Lagarde told reporters yesterday before leaving for the talks. That sentiment is “not unique to Europe,” Canadian Finance Minister Jim Flaherty signaled, saying in Istanbul that “the Australians are concerned, we’re concerned in Canada about upward pressure on the Canadian dollar because of the weakness of the U.S. currency.”
Lagarde’s comments came four days after similar remarks from European Central Bank President Jean-Claude Trichet. U.S. Treasury Secretary Timothy Geithner also has pledged support for a “strong” currency. Flaherty said he expected the G-7 to issue a communique following their meeting, after members earlier debated the need for one.
The dollar’s 14 percent slide this year against a basket of seven currencies since early March threatens economic recoveries outside the U.S. by making their exports more expensive. At the same time, Geithner is being forced to defend the dollar’s status as the world’s sole reserve currency.
Traders Watching
“Market-moving announcements could be forthcoming,” said Geoffrey Yu, a foreign-exchange strategist at UBS AG in London. “We expect to hear renewed commitments to the U.S. strong dollar policy and the European delegation may be tempted to communicate their worries on further rises in the euro.”
The dollar, which tumbled about 10 percent against the euro and yen in the past two quarters, slid further after a government report yesterday showed U.S. job losses accelerated in September. It traded at $1.4578 per euro and 89.77 yen late yesterday in New York.
“We’ll have a chance to discuss this in the coming days,” Lagarde said in Gothenburg, Sweden, yesterday before her departure for Istanbul, referring to the dollar.
G-7 members have discussed whether to break with tradition and not release a communique given that G-20’s leaders did so just a week ago after meeting in Pittsburgh. The G-7 is gathering in Istanbul before next week’s annual meetings of the International Monetary Fund and World Bank and its officials will brief reporters from 6 p.m.
China Intransigence
Limiting the G-7’s scope to reverse the decline in the dollar is the absence of China from its ranks and the G-20’s push for a narrowing of global trade and investment imbalances such as the U empire payday loans.S. current account deficit.
Among policy makers expressing concern about the dollar this week were Japanese Finance Minister Hirohisa Fujii. He signaled Sept. 29 his government was open to acting to stabilize the foreign-exchange market, and denied he supported a stronger yen. He won’t discuss the yen’s gains at the G-7, Kyodo News reported yesterday.
Canon Inc., Japan’s biggest maker of office equipment, says every 1 yen appreciation against the dollar will lower its second-half operating profit by 4.2 billion yen ($47 billion). The company based its profit forecast of 110 billion yen on the assumption the yen would average 95 to the dollar in the last six months of the business year.
Lipsky on Currencies
Still, John Lipsky, the IMF’s first deputy managing director, told Bloomberg Television yesterday that at present “there is not a problem in broad terms of valuation of the principle currencies.”
Flaherty two days ago pushed China to let its yuan appreciate “more quickly” after keeping it little changed against the dollar for more than a year.
That view was echoed yesterday by IMF Managing Director Dominique Strauss Kahn, who said he still views the yuan as “undervalued.” The IMF was last week tasked by the G-20 with monitoring its members’ efforts to even out the world economy.
China has frequently ignored campaigns by the G-7 for a more flexible exchange rate. It took almost two years to heed a request to loosen a currency peg with the dollar, only doing so in July 2005. The inflexibility helps Chinese exporters and means other currencies shoulder the burden of the weaker dollar.
While the dollar’s slide may buoy the U.S. economy by boosting demand for its goods, World Bank President Robert Zoellick repeated yesterday that it may lose its rank as the only reserve currency if budget deficits aren’t curbed. For now, it should still attract investors as a haven, he said.
“The American public and the American political leaders take for granted the unique standards of having the reserve currency,” Zoellick said. “You could lose what is an incredible thing to have.”