US Treasury Secretary Timothy Geithner said Saturday the global economy was on the mend, but more needed to be done to stoke domestic demand in China and fix Europe's fiscal woes. Geithner, in Tokyo for the annual meetings of the International Monetary Fund and the World Bank, said China needed to persuade its people to buy more and debt-wracked Europe needed to put into practice the decisions it has made to fix the continent's debt crisis.
"Although the world economy is expanding and progress has been made since the peak of the crisis, we still face a complicated mix of challenges to achieving stronger global economic growth," Geithner said. "The nature of the challenges differs across countries and regions, but what is common to us all is the challenge of creating the conditions for stronger demand growth," he said.
He said there had been "some progress" in China's trade relationship with the US, but "domestic consumption still does not play a sufficient role in driving China's economy". "Progress toward strengthening domestic demand will be good for China, and good for the global economy. In a rapidly changing world, it is crucial that we continue to modernise," Geithner added.
Washington has frequently complained that China's exports are disproportionate to what it imports. Critics say Beijing skews the relationship by keeping its currency artificially low. However, Geithner on Saturday said China's yuan currency has appreciated "by about 11 percent in real terms against the dollar" without giving a timeline.
China's currency hit a record high against the US dollar on Friday, in what analysts said could be a response to US political pressure. The unit touched an intraday high of nearly 6.2640 to the dollar, according to the China Foreign Exchange Trade System, marking the highest level since 1994 when the country launched its modern foreign exchange market. On the domestic front, and less than a month out from the US presidential election, Geithner said things were looking up.
The US economy is "continuing to recover from the most severe financial crisis in several generations" and has made progress in addressing the causes of the financial crisis, he said. "Private savings have increased; private debt has decreased; and the financial system is now much stronger," he said, but added: "our recovery, and the global recovery more broadly, face headwinds from Europe". Geithner said the European Central Bank and the continent's governments were working on fixing the sovereign debt crisis, but urged concrete action.
"Europe is also making progress on outlining a road map toward banking union, which is a critical step to ensuring a sustainable long-term framework," he said, adding: "However, what is important is how it will be applied in practice." Geithner said the United States was committed to reform of the governance of the IMF, despite the process having been stalled, largely because it has not passed through Congress. The United States is the IMF's largest shareholder. Member countries agreed in 2010 to increase voting rights of emerging economies through redistribution of quotas and the number of board members.
If the reform is implemented, China will become the third largest stakeholder of the IMF after the United States and Japan in terms of quota shares. India and Brazil will rank 8th and 10th, respectively. "Our objective is a formula that is simple and transparent, better reflects countries' weight in the global economy and would organically increase the voice of dynamic economies over time," he said.
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