PARIS - Federal Reserve Chairman Ben Bernanke on Friday urged countries with large trade surpluses such as China to let their currencies rise in value to help prevent another global financial crisis.
He also called on nations with persistent trade deficits such as the United States to narrow their budget shortfalls and save more.
Both steps would help balance trade and investment flows among countries, Bernanke said in a speech at a financial conference in Paris. Many countries worry about speculative money flooding their economies and inflating assets such as real estate or stocks.
“None of these changes will be easy or immediate,” Bernanke said.
The flow of capital and global imbalances more generally will be on the table at the Group of 20 industrialized and emerging nations meeting in Paris this weekend. Bernanke and Treasury Secretary Timothy Geithner will represent the United States.
“If there is no stabilizing system, then you can have situations where, like today, you have a two-speed recovery and demand is not optimally allocated around the world,” Bernanke said in a question-and-answer session following his speech. Emerging economies such as China are growing quickly, while industrialized countries such as the United States are expanding only slowly.
In his call for a rebalancing of the global economy, the Fed chairman singled out no specific countries. Instead, he urged those with large trade surpluses to let their currencies rise freely, encourage consumers to spend more and rely less on export-led growth. That was a reference to China.
Similarly, Bernanke said countries with sizable trade deficits must reduce government spending over time. This reference was to the United States.
The Fed chief’s tone was milder than in a speech he gave in mid-November. At the time, he struck back at China and other global critics for challenging the Fed’s $600 billion Treasury bond-purchase program. The purchases are intended to lower interest rates, lift stock prices and encourage more spending by U.S. consumers and businesses.
Critics have said the bond purchases could eventually help ignite inflation or speculative investment. China and some other countries called the purchases a scheme to drive down the dollar and give U.S. exporters an unfair edge.
Looking back at the financial crisis, the Fed chief said the United States and other countries share blame. Countries with trade surpluses plowed money into mortgage and other investments in the United States, helping escalate their value.
He also said the U.S. failed to safely absorb money flooding in from emerging nations including China, Mideast oil countries and industrialized countries in Europe. U.S. financial companies turned risky loans into highly rated investments through inflated credit ratings.