China ready for yuan move, US banker says

WASHINGTON - China should move quickly toward a more flexible currency to help ease world trade imbalances and it is ready to do so, US Federal Reserve Governor Ben Bernanke said today.

At a hearing on his nomination to head the White House Council of Economic Advisers, Bernanke said if China stopped buying US government bonds - which it has been snapping up to keep its yuan currency pegged at 8.28 to the US dollar - US interest rates might rise a bit, but not enough to hit the economy hard.

"I do believe they are now ready to go to a more flexible exchange rate regime and I would urge them to do that," he told the Senate Banking Committee.

"That would be part of the solution to move the US back toward a more balanced trade position and reduced reliance on foreign borrowing."

US lawmakers and manufacturers say China's currency peg keeps the value of the yuan artificially low and unfairly boosts Chinese exports to the detriment of American producers. The Bush administration, facing pressure from Congress, has grown increasingly vocal in pressing China to move soon.

Bernanke, a prominent monetary scholar who is often mentioned as a potential successor to Fed chairman Alan Greenspan, has served on the Fed's board since August 2002.

Since nominated by President George Bush last month to serve as a top White House advisor, Bernanke has recused himself from monetary policy deliberations. His nomination must be approved by the full Senate.

At the hearing, Bernanke was asked to address a wide range of topics, from China to weak wage growth to potential risks posed by mortgage market giants Fannie Mae and Freddie Mac.

Bernanke said that while the US job market had improved, the economy still faced labour market slack. And he expressed confidence the sluggish pace of growth in inflation-adjusted wages was due for a pick up, since businesses had become much more productive in recent years.

"The labour market has improved quite a bit but I think we have some ways to go before we are at full employment," he said.

"As the labour market strengthens, I believe we'll see real wages rising to match the gains in productivity."

Bernanke did, however, express concern at the relatively high number of long-term unemployed, and said a number of policy prescriptions should be examined, including increased training and grants for education.

- REUTERS