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China and Germany criticize FED move

08 November 2010 13:43 (UTC +04:00)

Baku - APA-Economics. The U.S. Federal Reserve’s move to pump hundreds of billions of dollars into the financial system will bring greater volatility to markets worldwide, a Chinese official said Monday.

The step will create new waves of cash sloshing in and out of countries in search of short-term profits, vice finance minister Zhu Guangyao told reporters at a news conference to discuss the Group of 20 meeting of major advanced and developing nations in Seoul, South Korea later this week.

The U.S. decision "does not recognize, as a country that issues one of the world’s major reserve currencies, its obligation to stabilize capital markets," Zhu said, referring to the global use of the dollar as the currency in which nations store the bulk of their foreign reserves.

"Nor does it take into consideration the impact of this excessive fluidity on the financial markets of emerging countries," he said.

The Fed last week announced plans to buy $600 billion of long-term government bonds by mid-2011 in an attempt to boost lending. That will increase the supply of dollars held by banks, hopefully spurring more lending.

The move is also expected to force down bond yields, taking with them interest rates for homeowners, consumers and businesses. By weakening the U.S. dollar it should also help make U.S. goods more competitive overseas and keep alive a stock market rally that began in August.

Nations from Brazil to Germany have criticized the U.S. policy, known as quantative easing, saying it could push their currencies higher and make their exports less competitive.

German officials, concerned that Washington could be pushing the global economy into a downward spiral, have launched an unusually open critique of U.S. economic policy and vowed to make their frustration known at this week’s Group of 20 summit.

Leading the attack is Finance Minister Wolfgang SchÃ¤uble, who said the U.S. Federal Reserve’s decision last week to pump an additional $600 billion into government securities won’t help the U.S. economy or its global partners.

The Fed’s decisions are "undermining the credibility of U.S. financial policy," Mr. SchÃ¤uble said in an interview with Der Spiegel magazine published over the weekend, referring to the Fed’s move, known as "quantitative easing" and designed to spur demand and keep interest rates low. "It doesn’t add up when the Americans accuse the Chinese of currency manipulation and then, with the help of their central bank’s printing presses, artificially lower the value of the dollar."