By Rebecca Christie
Sept. 25 (Bloomberg) -- Treasury Secretary Timothy Geithner said he sees a “strong consensus” among Group of 20 nations to reduce reliance on exports for growth and defended the dollar’s role as the world’s reserve currency.
“A strong dollar is very important in the United States,” Geithner said in response to a question at a press conference yesterday in Pittsburgh, where G-20 leaders began two days of talks.
Geithner predicted agreement on an Obama administration proposal to foster a global recovery that avoids lopsided flows of trade and investment. He said a higher U.S. savings rate this year is an “encouraging sign,” and he indicated that government support for markets will be withdrawn gradually.
The comments come after policy makers from China to Russia repeatedly called for an alternative to the world’s main currency in foreign-exchange reserves. China’s central bank deputy governor, Hu Xiaolian, has argued that the dollar’s global role allowed the U.S. to borrow cheaply abroad, fueling the credit boom that led to the financial crisis.
Geithner yesterday reiterated that the U.S. doesn’t intend for the dollar’s role in the global economy to diminish.
‘Special Responsibility’
“We have a special responsibility here in the United States to make sure we are doing the things in this country to preserve confidence in the U.S. financial system -- confidence that’s very important to sustain the dollar’s role as the principle reserve currency in the international financial system,” Geithner said.
“We expect, as I think countries expect around the world, the dollar to retain that position for a very long time,” he said.
Chinese Premier Wen Jiabao said in March that the Asian nation was “worried” about the safety of its investment in U.S. debt, as a weakening dollar erodes the value of its record $2.1 trillion of foreign-exchange reserves.
The trade-weighted Dollar Index has fallen 11 percent since President Barack Obama’s inauguration in January, in part because of a budget deficit projected to rise to $1.6 trillion this year as the government increases spending to boost the economy. The index measures the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona.
The Obama administration is trying to reach an accord among the biggest industrial and emerging economies to keep stimulus measures in place and lay the groundwork for a global economic rebound. Geithner said the U.S. will keep its assistance programs until “we are very confident” in the strength of the recovery.
China Support
Geithner said China supports the U.S. initiative, which calls for countries to boost domestic demand. He said Chinese officials backed the proposal this week and during talks in July, and he praised steps China already has taken to strengthen its economy.
“If you look at the composition of growth so far, their current-account surplus, their trade surplus is coming down, and domestic demand is getting stronger, and that’s a good sign of the shift,” Geithner said.
Geithner said signs are emerging of a global economic recovery, and he indicated a “shared commitment” among G-20 nations to adopt measures aimed at preventing another financial crisis while continuing to bolster their economies as they emerge from worst slump since World War II.
“We’re beginning to see growth in the United States and around the world,” he said. “This is encouraging, but we have a ways to go.”
Global Recovery
The International Monetary Fund raised its forecast for global growth next year to 2.9 percent from the 2.5 percent it predicted in July, a Group of 20 government official said earlier this month.
For its part, the U.S. will press ahead with financial regulatory changes and rein in government spending once the economy accelerates, he said.
The U.S. has “an obligation to make sure, as we get recovery in place, we are taking steps to bring down our fiscal deficits to a sustainable level and that we are unwinding and reversing the extraordinary actions we were forced to take,” Geithner said.
At this week’s meetings, the G-20 also is moving forward with efforts to overhaul financial regulation, rein in banker pay and require banks to hold more capital in reserve against potential losses. This week’s meetings should produce “more concrete timeframes” to put such changes in place, along with pledges that countries will act individually as well, the Treasury chief said.
U.S. to ‘Lead’
The U.S. wants to “lead by example” with changes to financial regulation, Geithner said, reiterating the administration’s desire to work with Congress to enact legislation this year. The U.S. also wants the IMF and the World Bank to give a bigger voice to developing countries with fast- growing economies, even as European nations express concern their own influence will decline, he said.
“This is a necessary shift,” Geithner said. “I don’t think there’s anybody who does not believe this is the necessary, appropriate shift in the basic balance of representation in these institutions. I think Europe recognizes that.”
To contact the reporter on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net.
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