French, Canadian Officials Call for China Yuan Shift

France and Canada said China must allow the yuan to appreciate faster after a meeting of policy makers from the Group of 20 nations.

The yuan, where it is, is causing tensions, French Finance Minister Christine Lagarde said in an interview at the G- 20 meeting in Kleinmond, near Cape Town, today. Canadian Finance Minister Jim Flaherty told reporters yesterday that China and a number of other Asian countries need to do more.

G-7 officials have strengthened their rhetoric on China in the past month as concern mounts it isn't shouldering enough of the dollar's slide, garnering an unfair advantage for its exporters. The European and Canadian currencies have soared to records against the dollar, threatening to hurt economic growth. By comparison, China has allowed the yuan to rise about 5 percent against the dollar this year and it has fallen against the euro.

While Lagarde said the G-20 didn't point out any specific currencies and wants to operate by consensus, she added that erratic movements of currencies are not welcome.

The French and Canadian officials are meeting counterparts such as U.S. Treasury Secretary Henry Paulson, European Central Bank President Jean-Claude Trichet and Chinese central bank governor Zhou Xiaochuan at this weekend's meeting in South Africa.

There was a genuine concern on the part of a lot of countries on the turbulence in the currency markets, Canada's central bank governor David Dodge said yesterday.

Correct Direction

International Monetary Fund Managing Director Dominique Strauss-Kahn echoed some of the concerns expressed by Canadian and French officials. He told reporters today the euro, the Canadian dollar and Brazil's real have on their shoulders a much larger part of the adjustment than they should, even though the U.S. currency has moved in the correct direction.

Paulson has signaled to U.S. trading partners that the dollar will rebound, predicting it will reflect long-term strength in the American economy.

The U.S. currency has dropped about 11 percent so far this year, based on the Federal Reserve's U.S. Trade-Weighted Major Currency Index. It fell this month to its weakest against the euro since the European currency's debut in 1999, to a 26-year low versus the pound and the lowest against Canada's dollar since it was floated in 1950.

OPEC countries meeting this weekend in Riyadh, Saudi Arabia, have been debating the dollar's decline, which is making it harder for them to manage inflation and keep their pegs to the currency at the same time. Gulf states including Saudi Arabia and the United Arab Emirates may revalue their currencies in as soon as a month's time, a person familiar with Saudi monetary policy said yesterday.

Source - Bloomberg