Nations must not pull back too quickly on economic stimulus because the global recovery still needs support, a top U.S. Treasury Department official said on Monday.
The pace of exit strategy has to be carefully calibrated. We have to be careful not to have an overly accelerated withdrawal, Treasury Under Secretary Lael Brainard told the Peterson Institute for International Economics, a Washington think tank.
Weighing in on a topic that has exposed differences between the United States and Europe, Brainard said that differences in the speed at which countries shifted from stimulus to restraint shouldn't overshadow the broad consensus that existed on fiscal policy.
Spending to combat the 2007-2009 financial crisis and prop up teetering economies has left large piles of government debt around the world.
Last week, European Central Bank President Jean-Claude Trichet said industrialized countries needed to come up with plans now on how to rein in deficits that could jeopardize their economies.
The Obama administration has pushed measures to increase support for the U.S. economy in the near term, while vowing to pivot quickly once the recovery is on more solid ground.
Different countries need to make judgments about how steeply to pull back stimulus based on national circumstances as well as global conditions, Brainard, the Treasury's point person for international affairs, said. And that provides ample fodder for talk of division and divergence.
Precisely at what juncture the balance (from stimulus to restraint) shifts from one to the other will vary depending upon the different economies, she said.
Asked repeatedly to assess the European bank stress tests that were published last week, Brainard said they had provided very detailed information bank by bank on exposure to risk and said that will help stabilize financial markets by increasing transparency about the sector's health.
The test results had offered a materially greater level of coverage and disclosure than previously, she said.
CHINA'S YUAN AN ISSUE
Brainard also told the group that the U.S. Treasury still considered China's yuan currency to be undervalued, but she declined to estimate by how much.
Some U.S. trade groups and lawmakers argue the yuan is undervalued by anywhere from 10 percent to 30 percent, giving China an unfair trade advantage.
Brainard said Beijing's recent move to end a peg between the yuan and the dollar showed China was letting market forces play a greater role. But she emphasized that the U.S. Treasury was closely monitoring how much it appreciated.
What matters to us is how far and how fast it rises against the dollar, she added, echoing language Treasury Secretary Timothy Geithner has used. The yuan has climbed 0.69 percent against the dollar since Beijing announced it was unshackling it from a peg on June 19.
Brainard also said the United States wants to see its trade partners enact standards for financial market regulation that are comparable to those signed into law last week by President Barack Obama.
She said convergence of global rules was vital for some issues, like setting capital standards and dealing with derivatives markets. But in other areas it was possible to work out common principles to guide different approaches among nations, she added.
Tougher global capital standards for banks was crucial, Brainard said.
More and higher quality capital must be at the core of our efforts to ensure a more resilient financial system, she said. And the new standards must be harmonized internationally to be effective domestically.
(Editing by Paul Simao)