WASHINGTON – U.S. Treasury Secretary John Snow on Monday shrugged off market speculation that Washington is pursuing a weak dollar by urging other countries to adopt flexible, market-based currency policies.
“Somehow our support for flexibility for a well-functioning international trade system that can adjust has been interpreted as a call for a weakened dollar,” Snow told the 40th Japan-U.S. Business Conference. “Nothing could be further from the case.”
In response to entreaties from the United States, the Group of Seven finance ministers and central bank chiefs agreed in September that “more flexibility in exchange rates” is desirable “to promote smooth and widespread adjustments in the international financial system, based on market mechanism.”
Market participants interpreted the accord as an indication that the U.S. administration is effectively scrapping its long-held policy of favoring a strong dollar amid pressure from U.S. manufacturers.
Snow said the G7 accord has been “misinterpreted, in some cases, badly misinterpreted.”
“Flexibility doesn’t mean lower or higher (for the dollar),” he said. “Flexibility means flexibility. Flexibility means market forces.”
U.S. manufacturers have maintained that Japan and China are keeping their currency artificially weak against the dollar to safeguard the competitiveness of their exporters.
They have also been critical of Japan’s repeated efforts to stem the yen’s rise against the dollar through market intervention and China’s policy of pegging the yuan to the dollar.
While welcoming progress in its economic structural reform program, Snow urged Japan to accelerate its efforts to make the economy more flexible, including promoting disposal of bad loans at banks and reallocating resources to industries with strong growth potential.
“If it (the Japanese economy) gets more responsive and flexible, I think we can see again the replay of the ‘miracle economy’ we knew in the ’70s,” he said.
Snow also thanked Japan for its contribution to Iraq’s reconstruction.
At a donor conference in Madrid last month, Japan pledged to provide Iraq with $5 billion in financial assistance over a four-year period.
“That was a wonderful act of generosity on the part of the people of Japan and the government of Japan,” Snow said. “Japan is playing a decisive leadership role.”
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