Finance ministers and central bankers from the Group of Seven industrial nations were united in their Feb. 7 call for flexible exchange rates that avoid excess volatility, U.S. Treasury Secretary John Snow said. Snow said on the Charlie Rose television program that the G- 7 statement was ``greeted well'' by currency markets. The dollar has risen 0.16 percent against the euro and 2.6 percent against the yen since the meeting in Boca Raton, Florida. ``We're really together, the finance ministers and central bankers, in embracing the idea of flexibility in exchange rates,'' he said. ``At the same time, erratic movements (are) unwelcome.''
Snow reiterated that the Bush administration continues to support a ``strong dollar'' whose value is set by exchange markets. The government should work to boost economic growth rather than focus on currency levels, he said. ``A strong dollar is good for America,'' Snow said. ``We trust the markets. We focus on what makes America's economy strong. The dollar will take care of itself.'' The U.S. currency fell by the most in almost two weeks against the euro in New York Tuesday after a report showed consumer confidence in the U.S. declined more than economists expected. The Conference Board's sentiment index for February dropped to 87.3 from a revised 96.4 in January, the biggest decline since a 14-point decrease in February 2003, a month before the start of fighting in Iraq.
Foreign Investment
Snow said that statistic is just one of many, and most others show the economy strengthening. Growth is strong enough that the U.S. will continue to lure foreign capital, he said. Foreign governments and investors bought a net $75.7 billion of U.S. assets in the final month of 2003, compared with $87.5 billion in November and $27.8 billion in October, the Treasury said last week.
``This economy is on a strong growth path,'' Snow said. ``We need to keep the American economy strong. By keeping the economy strong we continue to attract capital. America remains the very best place to invest.'' The Treasury chief said financial markets have faith in the Bush administration's ability to halve the federal budget deficit over the next five years. The White House expects the gap to reach a record $521 billion this fiscal year before it narrows as the economy recovers and spending is controlled.
China
``The administration is deeply committed to fiscal responsibility,'' Snow said. ``We wouldn't have the lowest interest rates in 40 years if the financial markets didn't feel the financial affairs of this nation were in competent hands.'' In New York trading Tuesday, the 4 percent note due in February 2014 rose 1/6, pushing down its yield a basis point to 4.03 percent. The yield briefly fell below 4 percent for the first time since Feb. 18. A basis point is 0.01 percentage point.
Snow also expressed confidence that China would eventually relax its currency peg, which keeps the value of the yuan close to 8.3 to the dollar. U.S. lawmakers and manufacturers have complained about the link because the yuan has tracked the dollar's 15 percent decline in the past year against a basket of six major currencies. That erases any competitive advantages from the dollar's drop for U.S. firms. Chinese leaders told Snow in meetings last September that they wanted to float their currency once they had modernized their economy by introducing better banking regulation and monetary policy, he said. Treasury officials are now in Beijing providing advice on how to achieve that. ``They accepted the proposition that they needed and wanted to move to a more flexible currency,'' Snow said of his meetings last year. ``They pointed out they couldn't do it tomorrow.'' The end of the currency peg would be ``good'' for China, he said. //www.bloomberg.com