Fed chief-designate calls on China to relax currency

Updated at 11.06am:
United States Federal Reserve chairman-designate Ben Bernanke called on China on Tuesday to reform its currency regime for the sake of its own economy.

The top White House economics adviser told a Senate confirmation hearing: "I think it's pretty much in China's own interest to allow their currency to float freely and be determined by the market."

Mr Bernanke, the nominee to succeed Alan Greenspan as Fed chief, echoed other top US administration officials in prodding China to play its part in unwinding global economic imbalances.

"They're a very large country. They need to have an independent monetary policy," he told the Senate banking committee. "It's difficult for them to continue sterilising their interventions the way they've been doing, so I believe that they will come to the recognition ... that it's in their interest to allow their currency to be determined by market forces."

China is accused by many US legislators of manipulating its currency exchange rate to dump its exports overseas at cheap prices, to the detriment of US jobs and industry.

In part because of surging Chinese exports, the US has run up a huge trade deficit, while China has an equally massive surplus and savings glut.

Mr Bernanke noted that it was up to the US Treasury to take the lead on currency matters, but said: "The Federal Reserve is active in providing advice and assisting in any way possible, and I would certainly do that."

Two US senators including Democrat Charles Schumer have sponsored a bill that would slap across-the-board tariffs on all Chinese imports unless Beijing took rapid action to revalue its currency.

A small reform to China's currency system in July has failed to assuage critics in Congress, and US President George W. Bush is under pressure to get tough on trade as he prepares to visit Beijing this weekend.

Mr Schumer, a member of the Senate banking committee, pressed Mr Bernanke on a likely timetable for China to revamp its currency regime.

"Senator, I think that they will go somewhat slowly," Mr Bernanke responded.

"They want to make sure that their economy is ready for the flexible exchange rate. They're looking at institutional factors involved in trading exchange rates and the like," he said.

"I would be very reluctant to give a timetable."