Beijing: The US 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 US 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 US dollar it should also help make US goods more competitive overseas and keep alive a stock market rally that began in August.
Nations from Brazil to Germany have criticized the US policy, known as quantative easing, saying it could push their currencies higher and make their exports less competitive.
The Fed’s key interest rate is already close to zero so the central bank has resorted to the creation of new money to boost the sluggish US economy. Amid the financial crisis, the Fed pumped $1.7 trillion into the financial system through purchases of mortgage and Treasury bonds.
Zhu said China would have a “candid” exchange of views with the US on the matter at Seoul.
China hopes US economic policies spur global growth and wants Washington to take responsibility for their effects on other nations, he said.
“So we feel that under these circumstances, this second round of quantitative easing is a shock to the stability of global financial markets.”
China’s central bank chief said Friday the move was understandable because of the slow US recovery but still might hurt the rest of the world.