| Updated at: 0931 PST, Monday, October 25, 2010|
SYDNEY: Australia's central bank chief said stronger domestic demand in Asia was needed to help iron out imbalances in the global economy, and tackling ongoing "currency wars" would not be enough.
Reserve Bank of Australia chief Glenn Stevens said global growth had been unsustainable ahead of the financial crisis and "a period of adjustment and structural change cannot be avoided, even under ideal policy settings".
But he warned that a full resolution of global imbalances would take time and required countries to accept sweeping adjustments "not just in exchange rates but in economic policies and structures across the board".
"There has been an increasing focus on exchange rates of late, with talk of ‘currency wars’ and so on," Stevens said in a speech.
"My view is that more flexibility of exchange rates in key emerging countries in Asia -- including China, but not only China -- would be part of a more balanced outcome... But exchange rate flexibility alone isn't enough."
Adjusting currencies such as the yuan would merely redistribute growth rather than encourage it, Stevens added, warning it would be "no panacea".
"The additional step needed is stronger domestic demand, compared with what would otherwise have occurred, in the countries whose currencies would appreciate in such circumstances," he said.
Stevens said shifting income from state enterprises to households in countries such as China was also part of the solution, requiring "far-reaching changes to very deep-seated attitudes to saving".
Reforms were especially important as the Asia-Pacific region became "both larger and more capable of exerting a degree of independent influence over its own economic performance", he added.
In the past decade China's share of Australian exports had increased five-fold to 23 percent, making it the country's biggest market, he said. India has also more than quadrupled its share to move into fourth place on 8.1 percent.
Japan and South Korea rounded out the top four which, combined, accounted for 58 percent.
In fifth place, the United States accounted for less than half India's share, while Britain, which was for decades Australia's most important trading partner, was down in in eighth place.
"The point of all this is not to say that somehow Australia has been, or will be, ?saved? by China or Asia. The emergence of Asia is to our advantage, if we respond to it correctly," said Stevens.
"We ought to take more than a passing interest in events in our region, and in the conduct of economic policies in our region, and not just those in the countries that once completely dominated the global economy, but no longer do," he added.