Economies need to move toward flexible exchange rates: Geithner

Complimenting India on maintaining market linked exchange rate, US Treasury Secretary Timothy Geithner today asked other key economies to move toward flexible exchange rate regime.

"Surplus countries will have to boost internal demand through structural reforms, while deficit nations will need to increase their savings. Key emerging economies will also need to move toward market-determined exchange rates in line with economic fundamentals," Geithner said in an opinion piece published in the Hindustan Times.

Geithner's comments come against the backdrop of US administration pushing for the appreciation of the Chinese currency yuan, which is being resisted by China to protect its exports.

Geithner arrived in India yesterday to join US President Barack Obama, who is on three-day official visit.

He said that for growth to be sustainable, a country should not only focus on exports but also encourage domestic demand as well.

Geithner said that before the global economic crisis too many nations oriented their economies toward producing for export rather than consuming at home, counting on a few deficit nations to import many more goods and services than they sold abroad.

The result was a global economy afflicted by an unstable array of external imbalances, both deficits and surpluses, he added.

Geithner said, "India is meeting this challenge, helping to demonstrate the dynamism that can accompany domestic demand-led growth combined with significant exchange-rate flexibility."

He said India is succeeding in fostering greater domestic demand in part by directing economic policies and incentives toward the bottom of the income pyramid.

Geithner said, India will also continue to make substantial investments in public infrastructure that will help to drive future growth in the coming years.

In short, India's focus on "inclusive growth", through targeted fiscal spending and investment, is contributing to greater support of Indian households and higher employment.

He noted that the US is doing its part as well. The US economy has been growing for 18 months, with a recovery led by private investment.

"We are repairing our financial system. Households are saving more, and we will reduce our fiscal deficit as the recovery strengthens," Geithner said.

Going forward, he said, "we are committed to building on our long-standing openness to investment and trade, while working to ensure through reforms in education and infrastructure that our nation remains fertile ground for invention and innovation."