Australia warns against currency intervention


AFP

SYDNEY — Australian Treasurer Wayne Swan urged against intervention in the rallying local currency Sunday, warning that the last time the exchange rate was fixed inflation ballooned to almost 20 percent. The Australian dollar breached parity with the greenback for the first time late Friday, peaking briefly at US$1.0003 as global currency sparring gave the commodities-linked Aussie a boost. Swan said it was a “milestone” which showed the relative strength of Australia’s economy, record commodity prices and “the effects of diverse and dynamic international currency markets.” But he said the strong dollar was a double-edged sword, boosting some areas and depressing others. “While the dollar has beneficial impacts for consumers through cheaper imports and some businesses through cheaper capital equipment, it also makes it much harder for trade-exposed sectors of our economy to compete, like manufacturing, agriculture, tourism and education,” Swan said in a note. He also warned against officially devaluing the risk-driven Aussie. “Attempts to artificially depress the value of the currency would be counterproductive as they would only succeed in driving inflation and interest rates higher, with damaging consequences for all sectors of the economy,” Swan said. The last time Australia attempted to fix its currency — during a trade boom in the 1970s — Swan said “headline inflation rose from around five percent to 17.6 percent in a little over two years.” While currency reform would be a hot topic at next weekend’s G-20 finance ministers’ meeting in South Korea, Swan said it was critical to discuss much broader changes which reflected the “increasing weight of Asia in the world economy.” “We have to show that we are capable of dealing with the structural reforms that will lift growth across all countries, not just shift it between countries,” Swan said.

“If the global recovery is to be balanced, and above all if it is to be sustained, developing nations need to see a faster rate of growth in domestic demand, and developed countries need to undertake reforms to increase domestic savings.”