Bernanke defends easing

The US is far from convinced that its monetary policy is hurting developing countries such as South Africa.

Ben Bernanke, chairman of the Federal Reserve Board, yesterday defended quantitative easing - a policy that has been called "selfish" by the finance ministers of some emerging countries.

Bernanke was speaking at a summit hosted by the International Monetary Fund and the Bank of Japan.

The Fed has, since the start of the financial crisis four years ago, kept interest rates near zero and has used three instalments of quantitive easing to pump liquidity into the market by increasing the money supply.

Brazil and China have criticised this, saying it keeps the value of the dollar low while appreciating the currencies of emerging markets, - such as the Brazilian real, the Chinese yuan and the South African rand - hurting their exports.

The rand plummeted to almost nine to the dollar last week. It has long been said by trade unions that it is overvalued.

Trade union federation Cosatu last month announced that it intended to get the Reserve Bank to intervene in currency markets to weaken the rand with a view to boosting exports.

Reserve Bank governor Gill Marcus last week again cautioned against thinking a weaker rand would be a boon to exporters.

She said in a speech in Grahamstown that the market in Europe - a major export destination for South African goods - was simply too weak.

Foreign money has been finding its way into South Africa this year as is evident in the lively buying of government bonds and the record highs hit by the JSE in recent months. Other emerging markets have had similar experiences.

Brazilian Finance Minister Guido Mantega on Friday called the latest, and third, round of quantitative easing announced by the Fed last month "selfish".

"Advanced countries cannot count on exporting their way out of the crisis at the expense of emerging-market economies," he said at the IMF summit.

"Brazil, for one, will take whatever measures it deems necessary to avoid the detrimental effects of these spillovers," said Mantega.

Finance Minister Pravin Gordhan was less severe in his criticism when speaking on behalf of 22 African countries. He said the third round of quantitative easing, and bond buying by the European Central Bank, might have positive short-term effects but "they are not sufficient to prevent the global economy from going into recession".

In a speech published on the Fed's website, Bernanke said he was sympathetic to the problems many countries faced, and accepted that quantitative easing affected the value of their currencies. But, he said, there were benefits for emerging markets.

"This policy not only helps strengthen the US economic recovery but, by boosting US spending and growth, it has the effect of helping the global economy as well."