Brazil should not act alone in trying to halt its currency's rising value, Treasury Secretary Timothy Geithner said in Sao Paulo Monday, calling for concerted action with the US and other major economies.
Instead, he said, in an apparent reference to China, that Brazil would be better able to stabilize the real when other "countries with large surpluses act to strengthen domestic demand in their economies, open their capital markets and allow their currencies to reflect fundamentals."
Geithner, on a one-day visit, acknowledged that Brazil's fast-paced growth and distortions in global trade had caused problems for Latin America's largest economy, including an influx of cash that risks creating economic bubbles.
"Brazil," Geithner said," has "born a disproportionate share of both the benefits and burdens of these capital flows," according to prepared remarks.
But, he said: "Brazil and other emerging markets cannot address these challenges by their own policy choices alone. They need -- just as we do -- the support from the policy choices of other major economies."
Without referring to China by name, Geithner said reforms in those "other major economies" would result in a more balanced flow of capital, "less upward pressure on Brazil's currency, and more robust growth in Brazil's exports, especially manufacturing exports."
Geithner noted that the US had pushed for Brazil to have a stronger voice in multilateral organizations and that the two countries were working with other members of the Group of 20 on a framework to reduce global imbalances.
In a meeting with business students and professors in Sao Paulo, Geithner directly broached the politically sensitive issue of China's yuan currency, which Washington says is undervalued.
Hiking the value of the yuan is "necessary" and "fundamentally good" for China, given signs of rising inflation there, Geithner said.
A slight uptick in the yuan's value against the greenback over the past few months showed the "very early beginnings" of a new strategy by Beijing, he said, but much more needed to be done.
China's weight as the world's second-biggest economy and pressures for it to boost domestic consumption underlined "very powerful fundamental forces that will produce appreciation over time," he told the class.
"A combination of the gradual appreciation of the exchange rate you're seeing plus accelerating inflation in China is going to produce over time a very substantial real appreciation of the currency," he predicted.
"That's a necessary thing for China, it's fundamentally good for China and it's going to be very important for countries around the world."
US lawmakers and officials have persistently accused China of deliberately undervaluing its currency to drive exports.
The US Treasury last week cleared China of currency manipulation, but said that the appreciation of the yuan was still "insufficient and that more rapid progress is needed."
The issue is particularly sensitive in Brazil, where the government has said an international "currency war" is underway with the United States pumping cheap dollars into its post-crisis economy, while China's yuan sinks in tandem.
The result was to accentuate capital flows into Brazil, forcing the real to appreciate and challenging its own exporters.
Asked specifically about the impact of the loose US monetary policy on Brazil, Geithner declined to answer, saying that was the remit of the US Federal Reserve, not the US Treasury.
But he also blamed some of Brazil's currency discomfort on real interest rates that are "higher than they need to be."
US President Barack Obama is scheduled to visit Brazil next month.
