China Warns US About Cutting Tapering Too Soon, Proposes BRIC Foreign Currency Fund

The focus for the entirely useless upcoming G20 meeting is fear over US tapering, capital flight, and liquidity.

Reuters reports Ahead of G20, China urges caution in Fed policy tapering.

The U.S. Federal Reserve must consider when and how fast it unwinds its economic stimulus to avoid harming emerging market economies, senior Chinese officials said on Tuesday.

The warning by China's Vice Finance Minister Zhu Guangyao and central bank Vice Governor Yi Gang came as economies from Brazil to Indonesia struggle to cope with capital flight as U.S. interest rates rise ahead of an expected tapering off in the Federal Reserve's bond buying program that unleashed liquidity across the world.

The United States - the main currency issuing country - must consider the spill-over effect of its monetary policy, especially the opportunity and rhythm of its exit from the ultra-loose monetary policy," Zhu said.

China will refrain from providing stimulus to the world's second-largest economy, which he said was on track to grow around 7.5 percent this year - in line with the government's target.

"On monetary policy, the focal point (of G20) will be on how to minimize the external impact when major developed countries exit or gradually exit quantitative easing, especially causing volatile capital flows in emerging markets and putting pressures on emerging-market currencies," Yi said.

Yi said a $100 billion foreign-currency fund being discussed by countries that make up the BRICS grouping of Brazil, Russia, India, China and South Africa will be set up in the foreseeable future. He said China would provide "a big share" of the funds but he did not give details.

"It will not exceed 50 percent," he said.

The BRICS' leaders have agreed to set up the fund to help ward off currency crises.

Useless G-20 Meeting

The G-20 meeting will be useless. After praising growth, motherhood, and apple pie, every country will do whatever it wants and there will be no agreements on agricultural tariffs, or anything else of substance.

Useless $100 Billion Currency Fund Proposal

The $100 billion BRIC foreign currency fund will be equally useless, assuming it even happens.

Recall that Brazil alone just hatched a $60 billion intervention scheme (see Brazil Plans $60 Billion Currency Intervention Scheme; Indonesia Abandons Intervention, Adopts Other Measures.

How far would $100 billion go? Not very. Is China going to back India with a mere $40 billion fund? If you think so, please tune into Mish Video: Troubled Currencies (And There are Lots of Them), Gold, Bernanke, Carry Trades, Bubbles.

And what about the non-BRIC countries like Indonesia?

So what good does pooling do if the countries all need the money at the same time? (like they do now).

Nonetheless, it's a safe prediction this proposed BRIC currency scheme will be blown up way out of proportion by some bloggers as the end of US dollar hegemony or some other nonsense.

For further discussion, please see my interview with GoldBroker on Gold, France, a Currency Crisis, and Other Things.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com