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Last Updated: Saturday, 20 October 2007, 03:38 GMT 04:38 UK
G7 calls for stronger China yuan
US Treasury Secretary Henry Paulson.
Paulson said slow movement on the yuan meant greater risk
Finance ministers from the G7 group of leading industrial countries have called on China to allow its currency to rise in value more quickly.

This would make Chinese goods less competitive and could help curb China's international trade surplus.

The G7 said it could also help reduce inflationary pressures in China because it would make imports cheaper.

The deputy governor of China's central bank said it was committed to gradual revaluation alongside economic reform.

But, added Wu Xiaoling, "moving the exchange rates in the absence of economic restructuring policies will hurt China".

In a statement issued after a meeting in Washington, the G7 also said their own economies remained fundamentally strong but there was an acknowledgement that oil prices and the US housing market are potential problems.

More speed sought

The yuan has in fact moved up 10% since China began to adopt a more flexible policy in 2005 and that was welcomed by the G7.

But they think it would be in everybody's interests for it to happen more quickly.

Yuan banknotes
China has also been criticised by Eurozone ministers

"They have always said that the reason they're not moving more quickly is they care about stability," said US Treasury Secretary Henry Paulson.

"And we care about stability. I just happen to think there's more risk in moving too slow than in moving more quickly."

A similar call was made by minsters from the Eurozone countries last week.

The G7 said that the fundamentals of their own economies remained strong but they did acknowledge that high oil prices and problems in the United States housing market are likely to cause global growth to be somewhat slower.

Mr Paulson said that the housing market and the mortgage crisis is the most significant risk to the US economy.

"We talked about the housing market, mortgage markets, sub-prime... It has been subtracting from our growth now for a number of quarters. And, despite that, the US economy is growing - very little evidence that it's spilled over into other areas."

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