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The Atlanta Fed's macroblog provides commentary on economic topics including monetary policy, macroeconomic developments, financial issues and Southeast regional trends.

Authors for macroblog are Dave Altig and other Atlanta Fed economists.


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April 15, 2007


Heard This One Before?

The Financial Times reports:

The world’s biggest economies on Saturday strengthened their commitment to reducing global imbalances but stopped short of making these pledges binding.

The “multilateral consultations” undertaken by the International Monetary Fund, included plans by China to make its exchange rate more flexible “in a gradual and controlled manner” against a basket of currencies.

There's not much to suggest that the "gradual and controlled manner" is having any impact quite yet.  Brad Setser puts it about as succinctly as it can be put:

There is just no way to get around the fact that China bought a ton of foreign exchange in the first quarter.

The Treasury is turning up the heat...

U.S. Treasury Secretary Henry Paulson stepped up his push for rule changes that would allow the International Monetary Fund to monitor and disclose cases of countries that manipulate their currencies, calling for action "very soon.''

"Reform of the IMF's foreign-exchange surveillance is the linchpin'' of needed changes in the 63-year-old fund, Paulson said today in a statement to the IMF's semiannual gathering in Washington. "We look forward to action in this important area very soon after these meetings.''

... but the response of the Chinese government sounds pretty familiar:

"We have noted the efforts to strengthen Fund surveillance since the Singapore Meetings, including through possible revision of the 1977 Decision on Surveillance over Exchange Rate Policies," [Hu Xiaolian, deputy governor of the People's Bank of China] said.

"In this regard, we wish to emphasize that, first, revision of the Decision should not proceed too hastily," she said. "In making adequate and careful analysis, the Fund must take the opinions of all concerned parties into account and build broad consensus among all member countries to ensure that it would benefit them all."

Second, in strengthening surveillance, the Fund should be realistic, and not overestimate, the role of exchange rate, Hu said.

"Biased advice would damage the Fund's role in safeguarding global economic and financial stability," she said, while emphasizing that the focus of surveillance should be consistent with the purposes laid out in the Fund's Articles of Agreement.

"Due respect should be paid to the fundamental role of sustaining growth in promoting external stability. External stability can only contribute to overall sustained stability when anchored by domestic stability," she concluded.

Also Saturday, Hu Xiaolian said that China's economic growth model has undergone welcome changes and its economy will continue on path of steady and fast growth.

"The Chinese economy is projected to remain on a fast growth track -- exceeding 8 percent in real terms -- in 2007," she said, adding that the government will give more emphasis to the quality and sustainability of economic growth.

She also said the reform of the China's foreign exchange regulatory framework has steadily deepened. "The RMB exchange rate formation mechanism is being improved and flexibility of the RMB exchange rate has increased significantly," she said.

Sounds like the status quo to me.

April 15, 2007 in Asia, Exchange Rates and the Dollar | Permalink

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Comments

"Sounds like the status quo to me."

Yep, but here's an interesting prespective from Latin America, reported by MarketWath's Rex Nutting:

Argentine Economy Minister Felisa Miceli argued that the [IMF]'s problems go far beyond inadequate surveillance of currencies.

"To many in both the developed and developing world, globalization has not brought the promised economic benefits and this is breeding a nasty protectionist sentiment," Miceli said. "Ministers need to be mindful of the political consequences of having the fund advocating for policy changes that breed protectionism and radical political opposition."

Income inequality is growing everywhere. "What is the fund doing about this?" said Miceli. "Well, very little or perhaps even more harm than good."

Miceli said effective currency surveillance would not be easy.

"If the fund has not been more effective in the surveillance of systemically important countries, it is mostly because these countries do not need to listen to the fund's exhortations," either because they, like the United States, can print all the currency they need, or, like China, have amassed huge currency reserves, Miceli continued.

Posted by: Wayne | April 15, 2007 at 11:26 AM

I agree Dave,

pretty much steady as she goes which after all also is what the data (oh sorry , Setser :)) tells us.

Meanwhile, everybody is looking to the ECB and the Euro-dollar. Indeed it is ticking up but for how long, or should I say for how long can the ECB keep on nudging upwards?

Of course then, the ECB and other European politicians are looking to Japan arguing that it is certainly about time for the Yen to reflect the fundamentals of the Japanese economy.

Now, that we certainly also have heard before :).

Posted by: claus vistesen | April 15, 2007 at 02:50 PM

Non-binding is the way everything is done these days. Like when you say to somebody you have no intention of seeing again, "I'll call you."

Shyeah....

Posted by: muckdog | April 15, 2007 at 09:44 PM

China's attitude towards the IMF/G7 is exemplefied by two facts:

1) The PBOC governor and Finance Minister stayed at home;

2) They marked USD/CNY higher today

Posted by: Macro Man | April 16, 2007 at 09:01 AM

As long as China remains such a large buyer of foreign exchange, none of the other great powers will have any leverage to change China's trade behavior.

The US could unilaterally prevent China from buying T-bills, but that would hurt Americans more than the Chinese.

This is only an issue because unions are politically significant.

Posted by: Erasmus | April 17, 2007 at 05:36 AM

a few simple truths:
- The enormous r.e. bubble we've witnessed was NOT caused by low interest rates OR the FED.
- Bubble states, including CA, NV, FLA, have yet to sign on to CSBS' nontraditional mtg. guidance. (It's been five months since CSBS issued the guidance & seven months since the FED directed its national banks on the issue.)
- National Bank owned credit card issuers are STILL aggressively offering 0% interest financing on transfers & purchases for the next YEAR.
- Freddie-Mac & Fannie-Mae are dangerously out of control, as are way too many of our hedge funds.
- Bond market strategists strongly believe BB WILL ease ff rates come fall. (So much for my theory they'd fall into line if BB talked straight to them!)

BB inherited the greatest mess the FED's seen since the 1930s, but BB alone (not Paulson) will be judged on whether we return to responsibile economic decision-making.

It is NOT the FED's job to see we never endure the horror of two successive quarters of negative GDP growth.

Posted by: bailey | April 19, 2007 at 12:32 PM

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