US' Paulson indicates opposition to plans for currency legislation on China

US' Paulson indicates opposition to plans for currency legislation on China

	Published : Thu, 21 Jun 2007 13:10 By : Agencies Print this Story

WASHINGTON (Thomson Financial) - US Treasury Secretary Henry Paulson has signalled opposition for legislation aimed at China's currency stance, stating his preference for a more diplomatic course.

In a briefing with reporters, Paulson said the US is working aggressively with China bilaterally in the Strategic Economic Dialogue, and in a wider perspective through the IMF, which this week set out new guidelines for handling undervalued currencies.

'I believe that's the way to proceed,' Paulson said.

In contrast, two bills have been introduced in the US Senate, backed by supporters who say they will press for passage this year. One, backed by the Senate Finance Committee outlines a series of penalties against countries that have purposefully undervalued their currencies, while, another, backed by the Senate Banking Committee seeks to step up pressure on the Treasury to come up with its own plan for dealing with the matter.

Paulson told reporters the reforms in the IMF are have ry important,' but said the onus will be on the organisation to use its new tools to pressure countries to ensure their currencies do not create global trade imbalances. He said the IMF's work on currency is 'interesting and positive,' and 'could be more relevant' to the challenges facing the global market today.

The IMF on Monday listed seven factors that could lead to discussions within the organization about currency policy. These factors include protracted large-scale intervention in the exchange market, restrictions on payments or other measures that affect capital flows, large or prolonged current account surpluses or deficits, and 'fundamental exchange rate misalignment.'

Many of these same factors are listed in congressional legislation that, if found, would require Treasury to cite a foreign country as having a fundamentally misaligned currency.

The IMF also added a new principle for members to follow, which is to 'avoid exchange rate policies that result in external instability.'

pete.kasperowicz@thomson.com

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