The following are highlights from testimony by Treasury Secretary Timothy Geithner on Thursday before the Senate Foreign Relations Committee on turbulence in the global economy and implications for the United States.
GEITHNER ON REBALANCING GLOBAL ECONOMY:
China understands they can no longer depend on demand from United States consumption being such a substantial contributor to growth. So, they have no alternative but to shift their growth strategy to a growth strategy that relies more on domestic demand.
They are moving in that direction but it can't happen unless they let their exchange rate move too. If they don't let their exchange rate move, it will work against that imperative in rebalancing. It is not just China, it requires a bunch of other countries that traditionally run large surpluses to make those same changes.
GEITHNER ON RISK TO THE DOLLAR:
I see no erosion in that and no material risk to erosion in that. Unless of course, over a long period of time, we are unable as a country to put in place reforms, not just from the fiscal side, but more generally, that sustain confidence in American financial leadership. That is the only risk to the role of the dollar. There is no risk to the dollar's role that we don't ... control in some sense.
GEITHNER ON APPRECIATION OF CHINA'S YUAN:
It is essential for China that they move. If they do not move they will face the risk of much more rapid inflation, much more risk of financial crises. That is why they are beginning to adjust now. They have not moved that far yet ... in real terms against the dollar the currency is now moving at an annual rate of 10 percent a year.
(The yuan) is still undervalued substantially, they have not moved very much yet. (But) we want this to be sustained over time, and we are going to continue to use every tool of persuasion we have directly and multilaterally to encourage them to move more quickly.
It is inevitable it is going to happen. It is either going to happen through more rapid inflation, in which case in real terms it is moving in our direction, or it will happen because the exchange rate appreciates more rapidly. But the real annual rate against the dollar is north of 10 percent a year. If that were sustained that is a huge shift over time.
GEITHNER ON BUILDING CLOSER TIES WITH BRAZIL:
(Brazil's new president) has made it clear to the United States that she is looking for ways to build a closer relationship, not just economically but also strategically, and we want to take advantage of that.
We see enormous opportunity in a whole range of economic issues to build a closer relationship.
GEITHNER ON BUDGET CUTS TO TREASURY INT'L PROGRAMS:
If we are unable to deliver on the commitments we made as a country... then we face the following types of consequences across these institutions.
In Asia, it means we fall even further behind... we cede more influence to China, we lose our capacity to veto core decisions. That would be hugely damaging to the United States.
We need to look beyond that to the cost of further erosion of our position in the World Bank or stopping the Inter-American Development Bank from going forward.
The ranking member referred to the deep economic stake we have in Latin America today as their economy expands; (there is a) huge economic stake for us in being part of the expansion.
GEITHNER ON SEIZURE OF LIBYAN ASSETS:
Thus far, we've found and seized almost $32 billion in assets -- $30 billion initially, and we found another $1.9 (billion) just in the last couple of days. This is the most effective and the quickest and the most forceful use of our authorities under the ... International Emergency Powers Act that we've ever done. I want to just emphasize our commitment to make sure that we're working with counties around the world to help make sure this broader effort has as much force as possible.
(Washington newsroom 1-202-898-6310)