PRIME Minister Julia Gillard says imbalances in the world economy must be tackled by governments embracing floating exchange rates and there is still much talking to be done to keep the Group of 20 nations unified on the issue.
The world’s leading 20 economies, known as the G20, struggled in its most recent meeting to meet consensus on how best to counter imbalances in world growth, and highlighted exchange-rate reform as a key priority.
The US especially has been critical of China’s controlled exchange rate, saying the yuan is being kept undervalued to the cost of the world’s economy.
Ms Gillard, who will meet US President Barack Obama, US Treasury Secretary Tim Geithner and Federal Reserve chairman Ben Bernanke in the US next week, gave her strong support for the US position on the yuan and made clear countries must allow their currencies to float freely.
“We are looking at this currency wars question,” Ms Gillard told The Wall Street Journal and Dow Jones Newswires in an interview.
“The G20 needed to deal with this at the last meeting.
“We believe it’s important that currencies do move to floating regimes, we understand that that takes time but in order for us to have sustained and balanced growth in the world economy we do need to deal with currency questions.”
But reaching and sustaining a consensus will not be easy, Ms Gillard said.
“There is a lot of work to do and a lot of discussions to be had between nations as we build the strength of the global economy and balance sustained growth,” Ms Gillard said.
The Australian prime minister used as an example her own country’s exchange rate, saying letting it trade freely is the right policy even though exporters may be hurt.
The high-yielding Australian dollar reached parity against the US dollar in October for the first time since floating in 1983. The pair traded a post-float record high of $US1.025 in December.
“We have a floating currency and we believe a market treatment system is the right approach,” Ms Gillard said. She highlighted manufacturing, tourism and international education as hurting from the exchange rate.
“Our dollar is reflecting market movements, it reflects the world’s judgement on our currency as a resources currency and our economy having emerged from the global financial crisis strong,” Ms Gillard said.
“If you have a floating dollar it comes with some disciplines, and one of the discipline is it does have some impact on other sectors,” she said.
Outlining expectations for strong domestic growth this year, Ms Gillard said the Asia-Pacific region is the world’s new powerhouse.
“This is the region the world will see dynamic growth in this century, China’s rise obviously is something the world is responding to. We see that as having opportunity for China to be on the global stage in a rules-based system.”
On the topic of consolidation amongst global bourses, Ms Gillard declined to comment on her views on the proposed takeover of ASX Ltd by Singapore Exchange Ltd.
“I want to see Australia continue to be a financial centre for our region. Sydney has played that role and I obviously want it to continue to play that role,” she said.
Asked on the timeline for when the merger, which needs government approval, may win support from politicians, Ms Gillard was noncommittal but hinted at a longer process.
“It is still at the very early stages in terms of the discussions between Singapore and our own exchange. There is some way to go in all of those discussions,” she said.