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Korea central bank chief urges china to revalue { February 21 2005 } Original Source Link: (May no longer be active)
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Korea central bank chief urges China to revalue
By Anna Fifield in Seoul
Published: February 21 2005 10:51 | Last updated: February 21 2005 10:51
China should be moving towards greater exchange rate flexibility and the US must put its economic house in order to mitigate the kind of market turbulence that has buffeted east Asian economies over the past year, according to South Korea's central bank governor.
Defending the Bank of Korea's own record intervention in currency markets last year, Park Seung advocated global exchange rate adjustment to allow for a gradual fall in the dollar.
“In order to develop its economy further, the time has come for China to consider whether it should continue to peg to the dollar,” Mr Park said in an interview published in the latest issue of Central Banking journal. “I do not think that a change in its foreign exchange regime would have a major adverse impact on China's economy. Ultimately, the government has the instruments to control the situation.”
China has come under sustained international pressure to revalue the renminbi, which has remained artificially low as the US dollar has fallen. This has left other currencies to absorb the impact of the weak dollar, particularly the Korean won, which rose by 15 per cent last year, more than any other Asian currency.
Mr Park said he agreed with the principle that Asian countries needed to adopt more flexible exchange rate systems because of the advantages in absorbing shocks to the domestic economy and in helping correct external imbalances.
“But in a country whose economic framework has not become firmly based, or whose financial system is fragile, this may leave it easily exposed to speculative attack,” Mr Park said.
The US needed to help redress global imbalances, exacerbated by its twin budget and payments deficits, by adopting policies to lower its domestic demand “both by pursuing soundness of its government's finances and by raising its private saving ratio”.
“This should be followed by global exchange rate adjustment and co-operation in economic policy,” Central Banking quoted him as saying. “The dollar needs to weaken gradually within a range of values that is sustainable for east Asian countries.”
South Korean authorities have intervened relatively heavily in the foreign exchange markets as the dollar weakened, with the country's foreign exchange reserves rising by 23 per cent over the past year to breach the $200bn mark this month.
Mr Park nevertheless repeated the government's standard line that South Korea's exchange rate policy should be decided freely in the market.
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