Federal Reserve chairman Ben Bernanke hit back on Friday at critics of the US central bank’s bond-buying programme and issued a thinly veiled attack on China’s policy of keeping its currency on a leash.
Bernanke, facing a chorus of protests about the asset-buying spree from within and outside the central bank, said a more vigorous US economy was essential to fuel the global recovery and dismissed charges he was debasing the dollar.
“The best way to continue to deliver the strong economic fundamentals that underpin the value of the dollar, as well as to support the global recovery, is through policies that lead to a resumption of robust growth in a context of price stability in the United States,” Bernanke told a conference at the European Central Bank in Frankfurt.
The Fed’s November 3 decision to buy a further $600 billion in US government debt with new money generated outrage among policymakers in many nations, who accused the United States of seeking to weaken the dollar to gain an export edge.
German Finance Minister Wolfgang Schaeuble called the policy “clueless,” while domestic critics have argued the policy could ignite inflation and fuel asset bubbles.
Fed officials have circled their wagons to defend the programme with an unusual campaign of public remarks. Bernanke went so far as to brief lawmakers on Wednesday behind closed doors.
In his remarks on Friday, Bernanke faulted inflexible currencies for blocking a needed rebalancing of global growth, but admitted a need for greater US saving as well.
“Deficits and surpluses are generated by many countries’ behaviour not a single currency,” Bernanke said during a panel discussion with IMF managing director Dominique Strauss-Kahn and European Central Bank president Jean-Claude Trichet.
“It will be very difficult for exchange rates by themselves to restore the balance and so I think structural adjustments on both sides are necessary,” Bernanke said.
Strauss-Kahn said he too recognised the difficulties involved but said global imbalances could not be tackled without “important changes in the relative values in the currencies”.
“We need to move in that direction,” he said.
Addressing international criticism of the Fed’s action, Bernanke said much of the recent weakness of the dollar reflected an unwinding of the increases that were notched as investors fled to the safety of the greenback during the European sovereign debt crisis in the spring.
Still, analysts said Bernanke’s emphasis on the need to reinvigorate the US economy was a dollar negative.
“It is hard enough to stop a central bank from weakening its currency when it is cutting rates, but when it is willing to print money to do so . . . it looks very much as if they see a weaker currency if not as the sole target of monetary policy, then as something that is natural, if not inevitable,” analysts at Citibank said in a research note.