Canadian Prime Minister Stephen Harper said China’s plan for a more flexible currency may help sustain a global recovery that remains fragile, and he will keep pressing the Chinese government to move ahead with its pledge as world leaders prepare to meet in Toronto later this week.

"In some of these announcements you know instantly what’s going to happen, in other cases, such as exchange rate movements, the proof will be in the pudding over time," said Harper, who will host a meeting of leaders from the Group of 20 nations June 26-27, in an interview with Bloomberg in Ottawa yesterday. "I do think this is a positive announcement. Obviously we’ll be continuing to press the Chinese on this and another number of matters."

China said three days ago it will allow a more flexible yuan, signaling an end to the country’s two-year-old policy of fixing the currency at about 6.83 per dollar. The yuan yesterday rose the most since a July 2005 revaluation and forwards jumped after China’s central bank made the announcement.

Canadian officials, including Bank of Canada Governor Mark Carney, have said the North American country is bearing a disproportionate share of global adjustment because it has a flexible exchange rate. Canada, which had a three-decade run of trade surpluses until December 2008, posted record deficits last year amid slumping sales to the U.S. The Canadian dollar has advanced 11 percent against the U.S. dollar over the past 12 months, the fifth-most among 31 major currencies tracked by Bloomberg. Canada is the U.S.’s largest trading partner, ahead of China.

‘Significant’ Impact

Harper said that a Chinese currency revaluation would benefit Canada by easing pressure on the Canadian dollar.

"The potential positive impact of this for Canada is quite significant," said Harper, 51, leader of Canada’s governing Conservative Party. "Particularly with the limitations on the Chinese currency, Canada’s currency has really carried its proportion of burden of deprecation of the American and other Western currencies."

China’s announcement shows the Asian country is prepared to take more leadership in sustaining global growth at a time when the recovery remains "very weak," he said.

"It sends a strong signal that China and other emerging economies are looking at how they are going to do their part to grow global demand as we go forward," Harper said. "We aren’t going to have the same kind of growth levels from the American or the Western consumer that we’ve seen over the past decade."

Maintain Stimulus

Asked if a revaluation of the yuan would ease pressure on the dollar, Harper said: "that’s obviously something that we would be hoping for."

Harper said it’s still too soon for many countries to end government stimulus programs, because the economic recovery is fragile, and the focus on deficits should be "medium-term. Most countries I don’t think are in a position where we would want to take the foot off the gas pedal of stimulus quite yet," Harper said.

In a sign of tension among G-20 countries, U.S. officials have flagged concern that others may become too vigilant on fiscal restraint, leaving their rebounds reliant on U.S. demand rather than domestic buyers.

"These differences obviously have to do with some of the particular circumstances that countries face," Harper said, citing "sluggish" employment growth in the U.S. and sovereign debt concerns in Europe. "Broadly speaking, you have got agreement, which is that we do need to continue to deliver stimulus now."

Tax Cuts

Harper, who studied economics at the University of Calgary in the 1980s and wrote a thesis on the economic cost of rising government spending ahead of elections, cut sales, personal and corporate taxes in his first three years in power even as his government paid down C$37 billion in debt over that time.

While joining global economic stimulus efforts in 2008 that have built up the country’s debt, Harper has continued to press ahead with corporate tax cuts and balked on global efforts to impose taxes on banks, with his government saying the measures allow the country to build a global advantage and fuel a quick recovery.

Harper’s government has pledged to erase its deficits in five years.

Canada will lead the G-7 in economic growth over the next two years, Carney said last week, helped by a banking industry that largely escaped the financial crisis.

Canada’s Banks

Canada’s 21 banks weathered seizures in credit markets without government bailouts partly because Canada’s higher capital requirements and loan limits helped lenders avoid most of the writedowns and losses that crippled global competitors, even as the nation’s economy slipped into a recession.

G-20 leaders in Toronto also will discuss new rules requiring banks to hold more and better capital and liquidity reserves, and Harper has held up Canada’s banking industry as a model. Harper, who has led efforts in the G-20 against a global bank tax, has cautioned against "excessive" rules for banks, as the country’s lenders warn the costs of too much regulation could choke off growth.

Canadian Bankers Association Chief Executive Officer Nancy Hughes Anthony said in a June 8 interview with Bloomberg that proposals by the Basel Committee on Banking Supervision last December were too "onerous".

At a meeting of finance chiefs in Busan, South Korea, earlier this month, officials agreed to design new capital rules by November, while keeping the timing of the implementation open. The statement issued by finance chiefs in Busan said countries would "aim" to have the new rules in place by December 2012.

Asked whether the 2012 deadline was a hard target, Harper said banking reforms will be another "balancing act."

"In the short-term you can’t do it in a way that would severely contract credit around the globe," Harper said.

"We want to bring in higher quality capital standards, we want to see leverage ratios," he said. "At the same time they are going to have to be achieved in an environment where we are trying to encourage the financial sector to continue to provide new credit."

To contact the reporter on this story: Theophilos Argitis in Ottawa at

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