Morgan Stanley economist welcomes U.S. move to delay forex report

21:28, April 07, 2010      

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Prominent economist Steven Roche, chairman of Morgan Stanley Asia, has welcomed the U.S. Treasury Department's decision to delay a report on foreign exchange that may have labelled China a currency manipulator.

Calling for an overhaul of the system producing the report, Roche applauded Treasury Secretary Tim Geithner's decision to delay the report, which was in danger of being co-opted by protectionists.

"When laws are twisted for crass political purposes, a responsible government must challenge them. I think there is a compelling case to suspend, or seriously overhaul, this exercise," Roche said in a statement issued late Tuesday.

A number of U.S. congressmen have been relentlessly pressuring the Treasury Department to label China a currency manipulator in the report that was scheduled for release April 15.

Some - including China and some U.S. economists - have opposed such a move, pointing out that a stronger yuan is no panacea for the U.S. trade deficit with China and U.S. job losses.

Roche said the main problem with the Treasury report is that "it perpetuates America's denial of its own role in fostering destabilizing global imbalances."

Since the U.S. views low savings growth as an entitlement, it must import surplus saving from abroad, and so it counts on the world' s savers, like China, to run large current account and trade surpluses to provide that capital, Roche said.

Roche also noted China's massive foreign exchange reserves are recycled into dollar-based assets, which helps fund America's savings shortfall.

"Whom might deficit-prone Washington turn to if it shuts off the Chinese funding spigot?" he asked.

He said China's currency strategy is essential to protecting its embryonic financial system and for maintaining social stability.

The delay of the report will facilitate China's reform of its foreign exchange regime, and the world stands a better chance of avoiding a slippery slope of trade frictions and protectionism, he added.

China's Foreign Ministry spokeswoman Jiang Yu said Tuesday China will continue to reform the Chinese currency's exchange rate mechanism, which involves a managed floatation in a self-initiated, gradual and controlled manner.

Source: Xinhua


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