Eight former US trade representatives and commerce secretaries pop up in the renminbi debate, warning Congress against legislating. No doubt timed to coincide with the deliberations on the Hill, with Ways and Means chairman Sander Levin having to decide which of the various options he wants to go with.
Easy to urge others to take a politically difficult route once you are out of office and don’t have to be re-elected, of course, but still might be an interesting contribution. The letter was distributed, btw, by the US-China Business Council, an association of multinationals active in China, which has been lobbying hard on the issue.
Somewhat as predicted, or at least predicted by me, Tim Geithner went as far as he could go in suggesting that various options were on the table for trying to push the Chinese into letting the exchange rate rise without giving any hostages to fortune.
The Murphy-Ryan bill (similar to Schumer-Graham in the Senate) got respectful attention and the possibility of support, though no commitment. Naming China as a currency manipulator, though, seems still to be off the table. Read more
No doubt in a valiant attempt to feed our insatiable curiosity ahead of time, some excerpts from Tim Geithner’s written testimony and prepared oral statement have come out tonight, before Thursday’s appearance in front of two Congressional committees. The key passage:
“We are concerned, as are many of China’s trading partners, that the pace of appreciation has been too slow and the extent of appreciation too limited. We will take China’s actions into account as we prepare the next Foreign Exchange Report, and we are examining the important question of what mix of tools, those available to the United States and multilateral approaches, might help encourage the Chinese authorities to move more quickly.”
It’s not explosive stuff but it does show that: 1) the administration is considering (or at least wants to give the impression that it is considering) a range of options, which could include classifying exchange rate undervaluation as an illegal export subsidy or taking a case to the WTO; 2) It is not a given that the Treasury will repeat its previous decision to resist naming China as a manipulator in the twice-yearly currency report. Read more
Big day on the Hill on Thursday as Mr Secretary does the rounds talking about China: the Senate banking committee in the morning and the House of Reps ways and means committee (which spent yesterday on another auto da fe hearing about the Chinese currency) in the afternoon. He faces a Blondinesque balancing act of being mad enough at Chinese foreign exchange intervention to placate angry lawmakers while not committing to precipitous and possibly WTO-illegal action like agreeing to currency tariffs.
Last time he was in this position, on June 10, Geithner rather neatly managed to amplify the complaints of senators in the hope that they would be heard in Beijing without necessarily endorsing them. Nine days later, China unpegged the renminbi. He will most probably try some version of this again on Thursday and hope that puts enough pressure on Beijing to take its foot off the renminbi brake for a while. Would that placate the senators and the congressmen? No. (Appearing in front of congressional committees, Geithner somewhat resembles a put-upon nephew who has been deputed to break some bad news to a gang of irascible uncles.) But would it do enough to stop them forcing currency legislation on to a crowded fall legislative schedule? Probably, yes.
Yowkers. Interesting timing for Japan to go back into the FX markets and sell the yen for the first time in six years. On Wednesday the US Congress cranks up its China currency campaign again, this time the House as well as the Senate coming up with a bill allowing the US to block Chinese imports on grounds of currency misalignment.
As I wrote before, it’s not clear which way this development cuts. Does it make it easier to confront China because another G7 country has been forced to deal with the effects of Chinese currency intervention, or does it make it harder to argue that China should stop intervening when Beijing can point at Tokyo and say “them too”? Read more
Washington returning to work after August and the Labor Day holiday, and some chatter about the prospect that currency intervention by Tokyo will complicate the diplomatic drive to get Beijing to ease off selling renminbi. The White House just despatched (who else?) Larry Summers on a charm offensive to China to ask for faster appreciation, and would dearly like the rest of the G20 to line up behind its campaign. The bad cop role is being played by Congress, which is holding a high-profile hearing on the issue next week.
But as sage Washington observers note, that becomes a harder sell if a prominent G20 member – indeed, a G7 member – is intervening as well. Of course, Washington could argue that Japan was forced into extraordinary action because of China’s persistent intervention. But at the very least it complicates the choreography.
For most of the last 20 years, central banking was increasingly a soloist affair: one instrument (interest rates), one target (inflation). Since that didn’t prevent a series of asset price bubbles and gigantic leverage nearly destroying the world economy, fashions have shifted to employing a veritable orchestra of instruments including a “macroprudential controls” section – capital requirements, collateral rules, dynamic loan loss provisioning and so forth. The IMF released a paper today which confirms the intellectual shift.
All very well, but putting this new approach into operation is going to be highly complex, not least because of the potential for normal monetary policy and the new macroprudential roles to get mixed up – one of the reasons that monetary policy and financial supervision were separated in the first place. Central banks are going to have to learn how to be independent of themselves.
The risk of a slowdown in the global economic recovery has risen sharply, but governments should continue planning to tighten fiscal policy, the International Monetary Fund has said.
Updates to the IMF’s regular world economic outlook and assessment of global financial conditions, released on Thursday, said jitters in financial markets in May and June threatened confidence and growth worldwide. Read more
The US will have much less room to grow than it believes and should therefore tighten fiscal policy more rapidly, according to estimates by the International Monetary Fund.
In the first report of the G20’s “mutual assessment process”, by which leading economies are supposed to hold each other accountable for growth, the IMF suggests that the “advanced deficit countries” – dominated by the US – should tighten fiscal policy more rapidly than planned. Read more
Ben Bernanke failing to blaze like a news comet in front of the House budget committee just now: US recovery steady but unspectacular; limited impact from Europe crisis so far; need to do something about the deficit in the medium term. The usual. One query came up from Paul Ryan (R-WI), the committee’s hawk-in-residence: why is gold hitting an all-time high? Is it a general flight from fiat currencies because investors think central banks are going to inflate the debt away?
Bernanke, predictably, thought (i.e. promised) not, offering the observation that gold was out there on its own “doing something different from the rest of the commodity group” and confessing that he didn’t fully understand movements in gold prices. Looking at long-term yields almost across the board, except for the default risk countries like Greece, it’s hard to argue he’s wrong. There are some anomalies that encourage investors to hold government debt, like the UK pension regulations which created artificial demand for gilts for a long time (one of the reasons the Debt Management Office was able to flog so many long-dated bonds), but not to this level. Gold still looks like the outlier, not the bellwether.
The ammunition dump has been trebled and still it might not be enough, reckons the head of the International Monetary Fund’s ministerial steering committee, the world’s second most famous Mr Boutros-Ghali.
Still, it’s not quite clear what Mr B-G wants to do. He is suggesting increasing the Fund’s firepower by issuing more Special Drawing Rights. But though they are often referred to as the IMF’s currency, SDRs are essentially just a form of accounting unit based on a basket of currencies, and do not represent a claim on the Fund. Creating more helps increase global liquidity, sure, as they count in governments’ foreign exchange reserves. But since they go to the IMF’s member countries in proportion to their financial quota it is the biggest members like the US and the northern European countries who will get the most. In theory they can on-lend them to countries that need them, but it’s not clear to me why this is a better way of funding European bail-outs than the traditional method of having countries lend money to the IMF directly. Read more
The boyish* Tim Geithner was in Europe this week blowing strangely warm about financial regulation and praising Germany’s leadership in the area. Given the short-selling ban imposed by Berlin, and the hedge fund directive currently passing through the bowels of the European decision-making process, this looks a bit odd.
Consensus among Treasury-watchers in DC is that it’s almost certainly a tactical move designed to get the EU and particularly Germany onside for future issues, akin to the ratcheting down of pressure on the Chinese which preceded Mr Geithner’s trip to Beijing. No point in poking Angela Merkel in the eye unnecessarily. But what issues? A likely candidate is the Basel III capital accords. If the US (particularly some elements in Congress) gets its way in toughening the standards, European banks are going to have to hold more capital. Not the easiest time to encourage European banks to accept another hit. Read more
The travails of the euro and the US’s soft-pedalling on the renminbi having emptied Tim Geithner’s trip to China of much potential drama, the revaluation lobby back in Washington have tried a new tack. Charles Schumer, senator for Stronger Renminbi, and some of his colleagues have demanded that Beijing authorise the release of the staff report which forms part of China’s annual “Article 4″ IMF healthcheck for last year and includes the fund staff’s views on the exchange rate. More than 80 pc of IMF member countries publish staff reports, but China, as it is entitled to do, is not among them. It releases instead something at one remove, a rather more opaque summing up of the IMF executive board’s discussion of the report.
The IMF has been embroiled in these rows before, and for a while went so far as to refuse to discuss the Chinese economy in the executive board to avoid disputes. But it has also stated pretty clearly that it thinks the renminbi should be liberalised, and still not much has happened. While it’s good to have US senators pressing the cause of transparency within the IMF, with whatever motive, it’s pretty unlikely that what the fund thinks is going to tip the policy balance in Beijing.
The announcement of the IMF’s €250bn role in the eurozone crisis package always looked slightly fishy – as though a large-sounding number had been randomly plucked from the air and added on to the actual SPV and balance of payments facilities. That is probably because that is exactly what happened.
The IMF’s contribution is what it might theoretically give if (1) it maintains the 2:1 ratio of EU to IMF funding that has persisted in recent bail-outs, especially Greece, and (2) the eurozone spent all of its new fund. It isn’t earmarked, because the IMF doesn’t earmark funds, and it will only be disbursed under the usual IMF conditions.
This search for a big number to impress the markets is all a bit reminiscent of the largely fictional $1,000bn that the G20 claimed it had pumped into the global economy at the London summit back in 2009, a Gordon Brown double-counting special. (Now Mr Brown will soon be looking for a new job, btw, and Dominique Strauss-Kahn could soon be on his way back to French politics – could they play former-European-finance-minister tag-team as IMF managing director?)
Anyway, the agreement does have operational, if not numerical, importance, cementing the relationship that the IMF has built up with the EU on the basis of joint rescues in Latvia, Hungary and Greece. A precedent is now established under which the IMF essentially sets the conditions and lends about a third of the money. The IMF’s loans are senior to the rest of the money, which is kicked in by the EU or eurozone members. Read more
… Remarkably, the way that the eurozone authorities have managed the Greek crisis has pulled off the difficult trick of incurring the stigma cost of the IMF’s presence while squandering much of the benefit. The unhappy combination has arisen from the eurozone’s mulish insistence in taking charge despite an iterative, not to say convoluted, decision-making process… Read more
It’s often the fate of the World Bank to be overshadowed at the spring meetings, since its sibling, the IMF, is generally in the thick of a faster-moving story (Greece, currencies, bank taxes, etc).
But in a weekend when the IMF basically avoided discussing all the big questions, the bank actually made some real concrete progress: it secured the $5.1bn capital increase that its president Robert Zoellick has been seeking for the best part of a year. So, like the IMF with its tripled firepower, the bank is having a shot at keeping up with the growth in the global economy. Read more
We generally call it the renminbi round here, but yuan gives a better headline. Just come out of a briefing from the UK’s Alistair Darling, taking a break from the general election campaign (for those taking notes, he’s got a majority of 7,242, not the safest seat in the world but not a marginal).
Darling had just stepped out of the IMF ministerial committee meeting in which, he informed us when I asked him, the words “yuan” and “renminbi” were never uttered. Apparently they discussed global economic imbalancing in somewhat broader terms. And the 800-pound panda in the corner of the room went ignored.
A communique that more or less acknowledged disagreement over the great bank taxes debate and a Canadian finance minister, Jim Flaherty, thinking that the debate was swinging Canada’s (anti-bank levy, pro-contingent capital) way. I think one of two things could happen at this point:
1. The US and Europeans who support the bank tax will keep pushing it at G20 level, perhaps soft-pedalling until after the Canadian-hosted G7/G20 summit in June and then resuming the campaign in the second half of the year.
2. As Secretary Geithner suggested tonight, the US might just forge ahead anyway and hope that the rest of the world follows behind once they see what a great idea it is. My notes (not precise quote) say: “We are going to move in the US and I suspect you will find when other countries see what we do, they are going to take similar measures”.
Not entirely sure that 2. is a sustainable option, since other countries might well think it is worth taking the risk of funding a bank bailout down the line to steal business from American and European banks now. Then again, Canadian banks aren’t particularly known for buccaneering adventurism in other developed country markets (some are quite big in emerging markets), so perhaps they are an exception that can be tolerated without too much risk of being undercut. Japan, on the other hand, another opponent of bank taxes, could be a different matter. Read more
By Alan Beattie and Tom Braithwaite in Washington
The proposal for a levy on banks’ balance sheets and profits was high on the agenda of the G20 grouping of nations after recommendations in a feasibility report by the International Monetary Fund, released earlier this week. Read more
Here in DC waiting for the G20 central bank governors and finance ministers meeting to end. There have been no actual cries of pain and bodies thrown out of the room as yet, but I think it’s safe to say that agreement over the vexed issue of taxes on banks’ balance sheets and/or profits is not going to be resolved this weekend. The Canadians at least have some moral authority on their side when they point out that their banks didn’t fail during the crisis, so why should they adopt the preferred solution of those whose banks did?
One thing strikes me, though. As we all know, the baton of global governance has passed from the G7 to the G20, sign of the rising power of Asia and Latin America, etc, etc. But this subject – the one that is most vexing and dividing them at the moment, except perhaps exchange rates – is a pure G7 issue. Few other countries’ banking sectors are big and developed enough to try to steal business from London or New York or Frankfurt or Paris or Tokyo as a result of new bank taxes, and those that might conceivably be – Singapore, Switzerland – aren’t in the G20 either. The G20: not a governance panacea. Who’d a thought it?