January 20, 2010 / 4:36 PM / in 8 years

Canada agrees to put China forex item on G7 agenda

WINDSOR, Ontario (Reuters) - Canada has agreed to Japan’s request to discuss the need for a stronger Chinese yuan at a February 5-6 meeting of G7 finance ministers and central bankers, Finance Minister Jim Flaherty said on Wednesday.

Flaherty told reporters that Japan’s finance minister had asked for the item to be on the agenda and that, as host nation, Canada would oblige.

The G7 has long urged China to allow more flexibility in its exchange rate, which critics say is kept artificially low, giving it an unfair export advantage and contributing to imbalances in the global economy.

“The new Japanese finance minister has been clear in his wish that ... we have this item on the agenda. So we will have it on the agenda, and we will discuss it together,” Flaherty said.

“It is a concern when people ask about the weakness in the American dollar, one has to look at the fact that some of the Asian currencies, including the Chinese currency, are artificially constrained,” he said.

Japan supports sending a “collective message” to China at the meeting, even though no final communique will be issued unlike past G7 meetings.

Flaherty did not clarify if such a message would be delivered at the end of the meeting via a joint finance ministers’ press conference.

With the G20 -- which includes emerging heavyweights China, India and Brazil -- now taking over as the prime forum for global economic policy making, the smaller G7 group of rich nations will become less formal, and next month’s meeting will be more “in the nature of a fireside chat,” Flaherty said.

RUSSIAN RESERVES

He also said that Russia’s announcement on Wednesday that it would invest some of its foreign exchange reserves in Canadian dollars was a vote of confidence in Canada’s solid fiscal standing, compared with that of the United States.

“Investments by other central banks in Canadian securities and (the) Canadian currency are a recognition of the fiscal health, relatively speaking, of Canada, which is strong,” he said.

As part of its diversification strategy, Russia has started investing some of its gold and foreign exchange reserves, the world’s third largest, in Canadian dollars. Last year, central bank officials said the Canadian dollar portion of Russia’s reserves would likely be smaller than the Japanese yen’s 2 percent.

On Tuesday, the Bank of Canada emphasized the strong Canadian dollar was a key factor weighing on economic growth this year, and the currency might hamper growth further if it rises further against the U.S. dollar.

Flaherty endorsed that diagnosis.

“I agree with the governor of the bank ... that the upward pressure on the Canadian dollar is very difficult for our exporters, particularly our manufacturers, who rely primarily on exports to the United States.”

But he called the strong currency a “double-edged sword” because it also helps Canadian businesses buy imported machinery and technology more cheaply.

Writing by Louise Egan; editing by Rob Wilson

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