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Another plea of guilty to price fixing that won''t make The Gartman Letter
G-7 calls for increased oil supplies;
Snow urges China to adopt flexible exchange rate soon
By Corbett B. Daly
Friday, October 1, 2004
WASHINGTON -- Finance ministers and central bankers
from the Group of Seven industrialized nations said Friday
that record high oil prices are a risk to the global
"We call on oil producers to provide adequate supplies to
ensure that prices moderate," the officials said in a joint
statement after meeting at the U.S. Treasury Department.
"Oil prices remain high and are a risk."
Crude futures closed above the key $50 level for the first
time ever earlier Friday, marking a gain of almost 3
percent for the week as traders continue to eye changes
to global production and supplies.
Still, the finance ministers and central bankers are
optimistic about the prospects for the global economy.
"Global economic growth is strong and the outlook for
2005 remains favorable," the statement said.
The finance chiefs also called for more transparency
and less speculation in the oil markets, as well as
increased energy efficiency.
Treasury Secretary John Snow said the high-oil
prices are "causing an economic headwind," which
he predicted would be short-lived.
"The geopolitics of oil, and current uncertainties,
are causing a short-term phenomenon," Snow said,
pointing to violence in Iraq and unrest in Venezuela
"Spot (oil) prices are out of line with the basic
fundamentals" of the market, the Treasury chief
On the sensitive issue of currency markets, the
ministers and central bankers repeated earlier
calls for increased flexibility in foreign exchange
"We emphasize that more flexibility in exchange
rates is desirable for major countries or economic
areas that lack such flexibility to promote smooth
and widespread adjustments in the international
financial system, based on market mechanisms,"
the statement said. Though not mentioned by
name, the wording is directed at China, which met
with the G-7 as a group for the first time at this
"We reaffirm that exchange rates should reflect
economic fundamentals. Excess volatility and
disorderly movements in exchange rates are
undesirable for economic growth. We continue
to monitor exchange markets closely and
cooperate as appropriate," the statement said,
repeating standard language for the finance
China has fixed its currency at roughly 8.3
yuan to the dollar since 1994, and the peg has
become a politically sensitive topic in this
U.S. manufacturers and labor leaders complain
the fixed exchange rate provides an unfair cost
advantage to China's exporters and has been
responsible for many of the millions of jobs lost
over the past three years.
At a bilateral meeting between U.S. and Chinese
officials earlier in the day, the Chinese repeated
their commitment to move toward a flexible,
market-based foreign exchange rate but didn't
outline specific plans or a timeline for doing so.
"China is important for maintaining strong global
growth, and a more flexible and market-based
renminbi (yuan) exchange rate is an important
part of achieving this goal," Snow said.
"I have been encouraged by some of the
advances that have occurred. Tonight, I
underscored that I would like to see China move
more quickly," Snow said, "I think that we are
Snow refused to be pinned down on a timeframe
for floating China's currency.
"As soon as possible is what we are hoping for,"
A senior Treasury official, speaking on condition
of anonymity, told reporters the U.S. believes
China could make the float immediately, as the
global economy is not in crisis, like it was in the
late 1990s during the financial meltdown in Asia.
The official noted that China had a floating
exchange rate before it pegged its currency to
the greenback in 1994.
Still, maintaining the peg has also served to keep
U.S. interest rates low, as China's central bank
buys hundreds of billions of dollars of U.S.
Treasurys. That allows the U.S. to record budget
and current account deficits without substantial
increases in interest rates.
Japan's economic leaders, on the other hand, said
Chinese officials should determine the pace of
"The Chinese will have to decide for themselves,"
Japanese Finance Minister Sadakazu Tanigaki
said Friday in a press conference.
Bank of Japan Central Bank Gov. Toshihiko Fukui
noted that China has many other "inflexibilities"
besides its currency, chiefly its investment capital
markets, which must also be reformed as China's
Tanigaki said there was no discussion about offering
a permanent membership in the G-7 to China, saying
the question must first be whether China wants to
The finance chiefs also said "inflation and inflation
expectations remain low in our economies."
On Iraq, the G-7 welcomed Wednesday's decision
by the International Monetary Fund to approve $436
million in emergency aid for the war-torn nation.
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