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China says flood of dollars could spark new crisis

China says flood of dollars could spark new crisis

Unrestrained printing of dollars could spark a new global crisis, an adviser to China's central bank warned Thursday as Asian governments braced for an unwanted flood of capital into their markets following the Federal Reserve's move to inject more money into the U.S. economy.
Opposition by Beijing and other governments to the Fed's move might hamper efforts to agree on measures to fix strains in the global economy at next week's Group of 20 leaders summit in Seoul.
"So long as the world shows no restraint in issuing reserve currencies such as the dollar, and this is not easy, the outcome will be what knowledgeable Westerners dread: Yet another crisis is inevitable!" said Xia Bin, an adviser to the People's Bank of China, in a commentary in a newspaper published by the bank.
The commentary did not mention the Fed's widely expected announcement Wednesday but the decision to publish it suggested Beijing opposed the strategy behind the plan to sink $600 billion into government bonds in an effort to revive economic growth.
Asian governments worry that money generated by the Fed's action will add to the flood of cash pouring into the region seeking better returns, pushing up the value of Asian currencies and making exports more expensive.
China's stock market reached a seven-month high Thursday and South Korea's benchmark Kospi index was close to a three-year high. India's market is flirting with an all-time record and some markets including Indonesia and the Philippines have been setting record highs nearly daily.
In the Philippines, where capital inflows have surged this year, the central bank said Thursday it would "remain vigilant" about the possible impact of the Fed's action.
The move "may in fact exacerbate what is going on in emerging markets," said a deputy bank governor, Diwa C. Guinigundo. The capital flows "can even be heavier and more destabilizing."
Strains over the Fed strategy could overshadow the G-20 meeting in Seoul, which brings together the United States, Japan, Germany, China, India and other governments that account for 85 percent of the global economy. South Korean President Lee Myung-bak said Wednesday they must agree on goals to reduce trade gaps and current account surpluses.
Last month, Thailand imposed a tax on income foreigners can earn from bonds in hopes of discouraging an influx of money that has pushed its baht to a 13-year high against the dollar.
China is less vulnerable to global capital flows. Its financial markets are off-limits to most foreign investors and its tightly controlled currency, the yuan, has risen more slowly against the dollar. But Beijing worries that flows of unauthorized speculative "hot money" are evading its controls and regulators are trying to stop them.
In the Philippines, the influx of short-term "hot money" in the first nine months of the year jumped 300 percent from a year earlier to $1.8 billion, according to the central bank.
Japan called for closer international cooperation.
"It is necessary for us to deepen our discussion on how we can strengthen international cooperation on monetary policy at the upcoming G-20 summit, G-7 and other meetings," said Chief Cabinet Secretary Yoshito Sengoku at a regular news conference.
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Associated Press writers Mari Yamaguchi in Tokyo and Jim Gomez in Manila contributed.


Updated : 2021-05-10 00:16 GMT+08:00