Jan. 29 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner’s call for China to loosen restrictions on its currency was criticized by economists and policy makers at the World Economic Forum.

Allowing the yuan to strengthen would be “economic suicide” amid an economic slump, Stephen Roach, Morgan Stanley’s Asia Chairman, told a panel in Davos, Switzerland, yesterday. “I’ve never seen an economy in recession voluntarily raise their currency. It’s horrible advice.”

Renewed clashes over the yuan threaten to stoke tension between two of the world’s biggest economies and undermine cooperation to counter the global recession. China limited yuan gains against the dollar in July 2008 after the currency rose 21 percent following the end of a peg three years earlier.

“Shouting from Washington to Beijing is not going to make a difference,” said South Africa’s Finance Minister Trevor Manuel on the same panel.

Geithner, who took office this week, said Jan. 22 President Barack Obama believes China is “manipulating its currency,” suggesting the new administration may take a tougher line with the biggest foreign buyer of U.S. government debt.

Early Contact

China’s Premier Wen Jiabao said yesterday in Davos he had expressed interest in having “early contacts” with Obama’s administration.

“A peaceful and harmonious bilateral relationship between these two countries will make both winners,” Wen said. “A confrontational one will make both losers.”

The Bush administration stopped short of using the term in criticizing China’s exchange-rate management. Some U.S. lawmakers are seeking measures to punish trading partners perceived to have undervalued exchange rates.

“Obama -- backed by the conclusions of a broad range of economists -- believes that China is manipulating its currency,” Geithner told Senators in written testimony. “The question is how and when to broach the subject in order to do more good than harm.” Obama’s team will “forge an integrated strategy on how best to achieve currency realignment in the current economic environment.”

China’s commerce ministry said Jan. 24 that the country hasn’t manipulated its currency to promote exports and that accusations of government tampering in foreign exchange will fuel U.S. protectionism. China’s yuan trades at about 6.85 to the dollar.

“It is probably not the right time to focus on the Chinese exchange rate given that it is not a central element of the world crisis,” Olivier Blanchard, the International Monetary Fund’s chief economist, said at a press conference in Washington yesterday. “There are many other things that we should be thinking about.”

To contact the reporter on this story: Simon Kennedy in Davos at skennedy4@bloomberg.net

Last Updated: January 29, 2009 01:20 EST

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