TOKYO, 2 September 2003 — Visiting US Treasury Secretary John Snow outlined the view yesterday that global growth could come only from boosting economic fundamentals, not by keeping the currency of one’s country artificially low. At a press conference in Tokyo following meetings with Japanese political and business leaders, Snow said he believed exchange rates should be flexible, determined by market forces, implicitly rejecting government intervention, or a currency peg.
“My long-held view on that subject is that a well-functioning international financial system is one that’s based on flexible exchange rates determined in competitive markets.” Snow did not mention Japan or China by name but his next stop en route to the upcoming Asia-Pacific Economic Cooperation finance ministers’ meeting in Thailand this week is China today.
“We want to make sure ... that we are heard on the subject of maintaining flexibility in exchange rate regimes as well so that American manufacturers and American firms are not disadvantaged,” Snow said. The yuan is pegged at around 8.28 to the dollar, which some analysts estimate means is undervalued by at least 15 percent.
US exporters and lawmakers have complained that the undervalued yuan makes American goods too expensive for Chinese markets and simultaneously makes Chinese exports unfairly cheap in US markets.
Snow called exchange rates a barometer of a nation’s fundamentals that should not be tampered with, as in the case of Japan’s market interventions, or pegged to the dollar artificially, as with China. “What are exchange rates but a set of signals for the global economy about how resources ought to flow, how resources can be best employed,” he said. “It’s important that those signals, within an economy and among and between economies, convey the right information.”
A weak currency helps a nation’s exporters by increasing their local currency income and making their goods more price competitive abroad. Japan spent nine trillion yen ($77 billion) to help weaken the yen in the currency markets from January to July, far above the record for a year’s spending set at 7.6 trillion yen in 1999.
But the latest Finance Ministry figures released on Friday showed Japan did not intervene in the market from July 30 through Aug. 27 despite repeatedly warning it would do so to prevent the yen’s sudden rise, which it fears will harm the competitiveness of the nation’s exporters. The treasury secretary was speaking after meeting briefly with Japanese Prime Minister Junichiro Koizumi and Finance Minister Masajuro Shiokawa, as well as holding separate talks with Japan’s economic policy czar Heizo Takenaka, and Bank of Japan governor Toshihiko Fukui.