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. 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 prepared remarks to 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. The flow of capital will be a topic for the Group of 20 industrialised and emerging nations when they meet in Paris later Friday and on Saturday. Bernanke and Treasury Secretary Timothy Geithner will represent the United States.
The Fed chairman singled out no specific countries. Instead, he called on 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. At the time, 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 US 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 US exporters an unfair edge. A lower dollar makes US products cheaper for foreigners and foreign goods costlier in the United States.
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