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An interview with Britain''s gold miner in Russia, Peter Hambro
By Alister Bull
Reuters
Friday, April 28, 2006
http://today.reuters.com/investing/financeArticle.aspx?
type=bondsNews&storyID=2006-04-
28T162803Z_01_N28383174_RTRIDST_0_ECONOMY-SNOW-DOLLAR-UPDATE-2.XML
WASHINGTON -- U.S. Treasury Secretary John Snow said on Friday that
the Group of Seven's statement last week must speak for itself,
declining to join Federal Reserve Chairman Ben Bernanke and other G7
officials in warning markets against reading it as a prompt to
weaken the dollar.
Markets have taken the G7 communique, part of which called for more
currency flexibility in China and was issued in Washington on April
21, as an excuse to sell dollars.
Since then, the currency has slipped further against the yen and
marked an 11-month low against the euro common currency in Friday
morning trade in New York.
"I think the communique has to speak for itself," Snow said on the
CNBC television channel. "The communique called for currency values
that reflect underlying fundamentals, and to reflect fundamentals
you need the markets to work, and to have the markets work you need
to be flexible."
G7 finance chiefs called for currency appreciation by China and
other emerging economies with large current account surpluses. They
also issued a one-page annex with the statement that dealt
specifically with global imbalances -- code for the record U.S.
current account deficit and surpluses in Asia.
Traders took this as an excuse to sell dollars, reasoning that if
Asian currencies must appreciate, they will do so against the
dollar, with a high risk of spillover into other major currencies.
Snow separately said the country's long-standing "strong dollar"
policy remained intact, dismissing analyst views that it was being
quietly dropped to help ease the country's record current account
deficit.
"No, that's our policy. It's good for America and it's policy that
we continue to believe in," he said in a separate appearance on
Bloomberg Television, when asked if the strong dollar policy was now
obsolete.
Bernanke said on Thursday that markets had got it wrong if they
thought the communique was a signal that the G7 wanted a managed
depreciation of the dollar, echoing remarks from Japan and the
European Central Bank.
Economists think this shows great concern in the G7 that eforts to
encourage Asian currencies to rise could provoke much sharper moves
in other currency pairs as well.
Snow, specifically asked on CNBC if he associated himself with this
position, deliberately declined to do so -- in a fashion likely to
harden bets against the U.S. currency.
"I don't comment on market reaction. What I will say is that the
communique clearly articulated the view of the G7 ... that greater
flexibility in currencies, on the part of countries that peg and
don't allow their currencies to move to reflect fundamentals,
greater flexibility there would be desirable. And China was called
on to continue its reforms of its currency, and to allow greater
flexibility," he said.
China on Thursday surprised markets with its first increase in
domestic lending rates in 18 months, albeit a modest rise to 5.85
percent from 5.58 percent for one-year loans. Snow said this was
evidence of change, but Beijing must still do more.
"The interest rate move they took I think is consistent with those
policies of modernizing their financial system and letting price
signals work more fully throughout their economy," he told Bloomberg
TV.
"We're not satisfied with the progress that's being made. We're
going to continue to press for the Chinese to make progress, but
this is probably a positive sign," Snow added.
Although Snow backed the strong dollar policy, this is a policy
position that failed to prevent the steep decline in the dollar's
value against the euro in 2002-2003, and many economists think the
dollar must fall again.
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