Bush urges China to loosen currency system
(Reuters)
Updated: 2006-02-14 08:54

The Bush administration, facing rising pressure over the record US trade deficit, on Monday urged China to further liberalize its currency policy but predicted the trade imbalance would eventually moderate.

In an annual summary of economic policies and goals, the White House said it was in China's best interests to allow its yuan currency to float more freely.

A woman walks past a poster advertising a foreign exchange business in Shanghai, August 11, 2005. The Bush administration, facing rising pressure over the record U.S. trade deficit, on Monday urged China to further liberalize its currency policy but predicted the trade imbalance would eventually moderate. [Reuters]

"Greater exchange-rate flexibility would provide China with a useful policy tool to help stabilize its business cycle. It would also help China to reorient its future growth away from net exports and toward higher domestic demand," President George W. Bush's Council of Economic Advisers wrote in the Economic Report of the President.

Markets will be watching the report closely this year since new Federal Reserve Chairman Ben Bernanke helped craft it in his previous incarnation as White House CEA chairman. He moved to the Fed on February 1.

Data out last week showed the US trade gap ballooned in 2005 to a record high of $725.8 billion, accelerating calls by lawmakers for a tougher trade stance toward China.

The White House report linked the surging shortfall in the current account, the broadest measure of U.S. trade since it includes investment flows, to structural issues in the world economy that have fueled a savings glut among Asian countries like China and Japan.

Bernanke, who served on the Fed board before moving to the White House in June, has argued a surfeit of savings in Asia was a big factor in global trade imbalances, a contention that became a touchstone in the debate over how dangerous such imbalances may be.

The report also acknowledged that Americans, whose saving rate has fallen below zero for the first time since the Great Depression, had to rein in spending while the government must cut the budget deficit.