Treasury Secretary Timothy Geithner pressed emerging economies today to adopt flexible currency policies in order to prevent inflation, deflate asset bubbles, and advance global financial progress.
Although he was careful not to mention China directly, Geithner's comments clearly addressed concerns that the Chinese yuan may be undervalued by as much as 40 percent and is distorting global trade balances.
"The collective impact of this behavior risks either causing inflation and asset bubbles in emerging economies or else depressing consumption growth," he said.
Geithner spoke at the Brookings Institution in advance of the annual meeting of the International Monetary Fund and the World Bank later this week.
In addition to calling on emerging economies to take action, Geithner went out of his way to emphasize the importance of multilateral negotiations. He said emerging economies are more likely to take action if they are confident that other countries will join them.
"It is not good for the world for the burden of solving this broader problem to rest on the shoulders of the U.S.," he said. "It is better for it to come in a multilateral context."
This was Geithner's first statement on the issue since the House passed currency legislation that would allow the Commerce Department to treat undervalued currency as a subsidy and impose tariffs on goods imported from countries like China. Although the executive branch was largely silent on currency regulation before the House vote, Geithner himself has long been an opponent of any unilateral approach to trade regulation.
He also called on export-based economies to adjust their trade balances.
"For too long, many countries oriented their economies toward producing for export rather than consuming at home," he said in his prepared remarks. For too long, he said, these countries have depended on U.S. consumers but have not reciprocated by importing American goods.
Geithner's comments would seem to indicate that the upcoming G-20 conference in Seoul, South Korea, in November will be heavily focused long-term trade issues.