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Europe Seeks Stronger Yuan, Too Europe Seeks Stronger Yuan, Too

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ECONOMY

Europe Seeks Stronger Yuan, Too

Europe pleaded with China on the second day of a Europe-China summit to let its currency rise, but China did not commit to any new currency action, according to a Bloomberg News report.

China has limited the yuan's gains against the dollar to about 2 percent since the People's Bank of China loosened a two-year peg of 6.83 per dollar in June. The euro has risen 15 percent against the dollar in the last four months, and 5 percent against the yen.

 

"If the euro continues to bear a disproportionate burden in the adjustment of global exchange rates, the recovery of the euro-area's economy might be weakened," Olli Rehn, European Union monetary affairs commissioner, told reporters after the meeting.

Japan, meanwhile, pledged Tuesday to keep its main interest rates between 0 and 0.1 percent to guard against deflation. That pushed the yen further down against the euro.

An artificial depreciation of the yuan and the yen burdens the 16 countries that operate on the euro in their efforts to recover from the Great Recession; the strong euro makes exports to China and Japan more expensive and less competitive, while imports from those countries have an advantage.

 

Although Europe has a trade surplus overall, the euro region's trade deficit with China was about 66 billion euros in the first half of 2010, up from 45 billion euros a year ago.

Rehn, European Central Bank President Jean-Claude Trichet, and Luxembourg Prime Minister Jean-Claude Juncker met with Chinese Premier Wen Jiabao, Finance Minister Xie Xuren and People's Bank of China Governor Zhou Xiaochuan on the sidelines of the Europe-China summit in Brussels on Tuesday. Wen will reportedly hold an additional meeting with EU leaders today.

The U.S. has also shown increasing frustration with China: Last week, the House passed a measure that would attempt to prevent Chinese manufacturers from relying on an artificially weak yuan in order to bolster its exports to the U.S.

Brazilian Finance Minister Guido Mantega has warned of an "international currency war" as countries scramble to stay competitive in a sputtering economic recovery, but Brazil doubled the tax on foreign purchases of local bonds Monday, pushing up its exchange rate.

 

The head of the International Monetary Fund, Dominique Strauss-Kahn, told the Financial Times on Monday that "the idea beginning to circulate that currencies can be used as a policy weapon... would have a negative and very damaging longer-run impact" on the global recovery.

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