Bernanke calls for currency balance to ensure global economic health

Federal Reserve Chairman Ben Bernanke urged nations to ease trade gaps in a speech Friday to the G20 bank governors. 

Associated Press

Federal Reserve Chairman Ben Bernanke urged nations to ease trade gaps in a speech Friday to the G20 bank governors. 

PARIS — Federal Reserve Chairman Ben Bernanke on Friday urged countries with large trade surpluses like China to let their currencies rise in value to help prevent another global financial crisis.

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He also called on nations with persistent trade deficits like the United States to narrow their budget shortfalls and save more.

Both steps would help balance trade and investment flows among countries, Bernanke said in a speech at a financial conference in Paris. Many countries worry about speculative money flooding their economies and inflating assets like real estate or stocks.

"None of these changes will be easy or immediate," Bernanke said.

"If there is no stabilizing system, then you can have a situation where, like today, you have a two-speed recovery and demand is not optimally allocated around the world," Bernanke said in a question-and-answer session after his speech. Emerging economies like China are growing quickly, while industrialized countries like the United States are expanding more slowly.

In his call for a rebalancing of the global economy, the Fed chairman singled out no specific countries. Instead, he urged those with large trade surpluses to let their currencies rise freely, encourage consumers to spend more and rely less on export-led growth. That was a reference to China.

Similarly, Bernanke said countries with sizable trade deficits must reduce government spending over time. This reference was to the United States.

The Fed chief's tone was milder than in a speech he gave in mid November, when he struck back at China and other global critics for challenging the Fed's $600 billion Treasury bond-purchase program. The purchases are intended to lower interest rates, lift stock prices and encourage more spending by U.S. consumers and businesses.

Critics have said the bond purchases could eventually help ignite inflation or speculative investment. China and some other countries called the purchases a scheme to drive down the dollar and give U.S. exporters an unfair edge. A lower dollar makes U.S. products cheaper for foreigners and foreign goods costlier in the United States.

In his November speech, Bernanke warned China that it and other developing nations were putting the global economy at risk by keeping their currencies artificially low.

Bernanke struck a more professorial tone in his remarks Friday. He stressed that countries must collaborate to confront financial threats. And he didn't specifically discuss the Fed's bond-purchase program.

Looking back at the global financial crisis, the Fed chief said the United States and other countries share blame. Countries with trade surpluses plowed money into mortgage and other investments in the United States, helping escalate their value. Bernanke said a paper he co-wrote and presented to the financial stability forum in Paris confirms this.

But he also said the United States failed to safely absorb money flooding in from emerging nations like China, Middle Eastern oil countries and industrialized countries in Europe.

Bernanke calls for currency balance to ensure global economic health 02/18/11 [Last modified: Friday, February 18, 2011 10:58pm]

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