Bernanke blames Congress as China flexes economic muscles
Former Federal Reserve chairman Ben Bernanke on Tuesday rebuked US lawmakers for allowing China to steal a march with a new Asian bank that threatens to upend Washington’s oversight of the world economic order.
Speaking in Hong Kong, Bernanke also echoed the International Monetary Fund (IMF) in saying China’s currency was “much better aligned” today, after Western criticism that Beijing cheats in global trade by distorting the yuan’s exchange rate.
With the launch of the Asian Infrastructure Investment Bank (AIIB) and its plans to gradually roll out the yuan as an international currency, China is flexing its economic muscles to the consternation of some US critics.
But, Bernanke said, the US Congress only had itself to blame after refusing to ratify reforms agreed in 2010 that would have given greater clout to China and other emerging powers in the IMF.
It remains “better to have a global unified system” playing to standardised rules, he told an audience of investors on the sidelines of the World Business Forum in Hong Kong.
“But I understand entirely that if the Congress will not allow the (IMF’s) governance system to appropriately reflect the changing economic weights, then I understand why other countries would say ‘let’s take our marbles and go home’,” Bernanke said.
“It’s not a good development” to have competing institutions, “but I can understand why China and other countries might want to say ‘well, we’re going to set up our own system'”.
– Bernanke defends his record –
However, Bernanke noted that private capital was today vastly bigger than in 1944 when the IMF and World Bank were set up, presenting another outlet for infrastructure borrowing beyond government-backed lenders.
China has won support from Asia and Europe for the new AIIB, which aims to support infrastructure projects across the Asia-Pacific region. But the United States and Japan have shunned the initiative.
The new bank is expected to amplify China’s ongoing programme to boost the yuan’s international profile, although the government is wary of moving too quickly before the financial system is ready to cope with the stresses of greater openness.
Bernanke said Beijing was right to stick to “incremental steps” that could one day turn the yuan into a major reserve currency alongside the dollar and euro.
The yuan’s value, he added, had “appreciated considerably” over the past five years and was closer to fair value. That view is in line with a new IMF appraisal but at odds with the US Treasury, which still insists the currency is too cheap.
Bernanke also defended the unorthodox set of tools he wielded as US Federal Reserve chief in response to the 2008 financial crisis, insisting that quantitative easing had staved off disaster and contrasting his proactive response to Japan’s long stagnation and the “passive” European Central Bank at the time.
Detractors of QE were wrong to predict the policy would ignite runaway inflation, and the US economy is now “moving forward pretty well”, he said.
But Bernanke declined to forecast when the Fed’s ultra-low interest rates might start going up again under his successor, Janet Yellen.
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