KAI PFAFFENBACH/POOL Reuters
Ben Bernanke, Chairman of the U.S. Federal Reserve Board delivers his keynote speech at the sixth European Central Bank (ECB) Central Banking conference in Frankfurt, Friday Nov. 19, 2010.
Federal Reserve Chairman Ben Bernanke is defending his plan to buy $600 billion in US treasury bonds to drive down long term interest rates. He's been criticized both domestically and internationally for the plan. Bernanke took clear aim at his international critics at a speech today at the European Central Bank Central Banking conference (and no, I didn't make that name up) in Frankfurt.
From the WSJ:
The Fed chairman's message, though scholarly in tone, was unusually blunt in laying blame for inflationary pressures in emerging markets and for tensions over currencies on countries like China. A chart accompanying his comments also pinpoints Taiwan, Singapore and Thailand as aggressively trying to hold their currencies down, while India, Chile and Turkey aren't.
"Why have officials in many emerging markets leaned against appreciation of their currencies toward levels more consistent with market fundamentals?" Mr. Bernanke asks. Mainly, he says, because they are sticking to a long-term strategy of pushing for export-led growth with cheap exchange rates.
Exporting countries have said that Bernanke is intentionally driving down the value of the dollar, hurting their economies. They also fear a lower dollar could fuel inflation or asset bubbles in their economies. Bernanke didn't seem to have a lot of patience for that argument. Saying their problems are of their own making. From the AP:
"Currency undervaluation by surplus countries is inhibiting needed international adjustment and creating spillover effects that would not exist if exchange rates better reflected market fundamentals,'' he said, without explicitly pointing to China.
China holds some $2.6 trillion in foreign currency reserves, most of it in dollars. They've bought the dollars to keep their currency lower in value.