Canada sees G7, G20 addressing yuan, imbalances

OTTAWA (Reuters) - G7 and G20 meetings next year will put a major focus on fixed-rate currencies like the Chinese yuan to try to address global economic imbalances, Canadian Finance Minister Jim Flaherty told Reuters.

Speaking in an interview on Monday, Flaherty said the Canadian dollar and other market currencies could keep rising. The interview was held for release on Tuesday.

Flaherty, who will chair talks by finance ministers and central bankers of the Group of Seven rich industrialized nations in Canada in February, said a meeting of finance officials from the broader Group of 20 rich and emerging market economies would take place in June in South Korea.

The Canadian meeting, in the Arctic town of Iqaluit, would not issue a communique, reflecting the increasing weight now being placed on the G20 in the international community.

“This is an opportunity for G7 countries to deal with some of the financial sector reform issues, for example, because the financial crisis did emanate from the G7,” he said.

He said the question of currencies was crucial because of the global imbalances -- principally huge current account surpluses in countries like China and deficits in the United States and elsewhere.

“You can’t look at the world today on a macro basis and not ask the question: Is this a source of instability?” he said.

“So China, for example, was permitting its currency to move more toward the market before the crisis. I hope as the crisis eases that we’ll see a resumption of that pattern.”

Europe and Canada have complained that an inflexible yuan means their currencies bear the brunt of currency movements to help fix current account deficits.

Flaherty said the Canadian government and the Bank of Canada have tools to influence the exchange rate of the Canadian dollar “but they really are limited.”

“Any observer can see these days that the pressure is downward on the U.S. dollar and upward on the other market currencies, that we have a global imbalances issue with respect to some of the Asian currencies,” he said.

He said the volatility of the Canadian dollar makes it difficult for businesses to adjust. “It’s a market currency, so what we’re always worried about is volatility.”

The G7 comprises the United States, Japan, Britain, France, Germany, Italy and Canada.

Flaherty said the Iqaluit meeting would look at ways to strengthen the financial system to prevent another crisis.

That includes the sticky topic of mutual assessments of national financial systems. This was envisaged in the G20 summit in Pittsburgh, Pennsylvania, but sometimes countries are reluctant because of concerns over sovereignty.

Editing by Janet Guttsman