Financial stimulus will boost world economy, says Bernanke
FED chief Ben Bernanke defended his monetary stimulus to fellow central bankers, saying it would aid the world economy, and also made some of his strongest criticism yet of China's weak-currency policy.
The best way to underpin the dollar and support the global recovery "is through policies that lead to a resumption of robust growth in a context of price stability in the United States," Mr Bernanke said in a speech in Frankfurt yesterday.
Countries that undervalued their currencies may eventually inhibit growth around the world and risk financial instability at home, he said.
The Fed chief is confronting criticism from officials in countries including China and Brazil, who say the November 3 decision to buy $600bn (€440bn) in Treasury securities has weakened the dollar and contributed to flows of capital to emerging markets.
The policy has also come under fire in the US, where critics have said it risks fuelling inflation and asset bubbles.
"Globally, both growth and trade are unbalanced," Mr Bernanke said. "Because a strong expansion in the emerging-market economies will ultimately depend on a recovery in the more advanced economies, this pattern of two-speed growth might be resolved in favour of slow growth for everyone if the recovery in the advanced economies falls short."
As Mr Bernanke spoke, the Chinese central bank said it would raise the reserve ratio requirement for the nation's banks by 50 basis points from Monday. The euro rose to $1.3671. (Bloomberg)