Monday, February 07, 2011

US backs Brazil in currency war with China

Timothy Geithner, the US Treasury Secretary, has voiced tacit support for Brazil in its "currency war" with China in a sign that the two giants of the Americas will work together to tackle the issue.

Speaking during his first official visit to South America's biggest country, Mr Geithner said "undervalued currencies" elsewhere meant Brazil has received a disproportionate share of global capital inflows.

Foreign investment has driven a 38pc appreciation of Brazil's real against the dollar in two years and a flood of cheap Chinese imports has damaged the country's manufacturing base.

But Mr Geithner said that when "countries with large surpluses" allow their currencies to "reflect fundamentals" the upward pressure on the real will fall, aiding Brazilian exports.

He did not name China but his comments come days after a Treasury Department report said the yuan remains "substantially undervalued" and that China had made "insufficient" progress in allowing it to rise.

"Investors around the world see Brazil growing at a faster pace and offering higher rates of return relative to other major economies," Mr Geithner said in a speech in Sao Paulo.
Read the rest here.

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