By Jan Strupczewski
BRUSSELS, March 4 (Reuters) - Exchange rate fluctuationsthat could threaten the European Central Bank"s price stabilitytarget could warrant an intervention on the market, ECBGoverning Council member Vitor Constancio said.
"The euro area has adopted a flexible exchange rate regime,implying that the external value of the euro vis-a-vis thecurrencies of third countries is determined by the market,"Constancio said in written answers to questions from EuropeanParliament members.
"This allows the ECB to focus on its objective -- thepreservation of price stability -- and should contribute tolimit exchange rate volatility," he wrote in a document datedMarch 2, which was obtained by Reuters.
"However, episodes of overshooting and undershooting maynevertheless develop in exchange rate markets, which may havean impact on price trends and imply risks to price stability inthe euro area," he said.
"In these cases, public intervention to limit excessiveexchange rate volatility may be warranted provided it iscoordinated with other countries."
Constancio"s answers spearhead a parliamentary hearing onMarch 23 following the recommendation of European Union financeministers in February that he should replace Lucas Papademos asthe ECB"s vice president.
Asked about the euro-dollar exchange rate, Constanciosaid:
"The ECB, through its president, has been on recordnumerous times over the past 18 months indicating that wewelcome the statements by the U.S. authorities that a strongdollar is in the interest of the United States."
On the exchange rate of euro against the Chinese yuan,which is pegged to the dollar, Constancio noted that since thestart of Chinese exchange rate reform in mid-2005, the renminbirose against the euro by only 7.4 percent, while it gained 21percent against the dollar.
"I therefore welcome China"s continued commitment to moveto a more flexible exchange rate, which should lead tocontinued appreciation of the renminbi in effective terms," hesaid.
Constancio said the ECB and the U.S. Federal Reserve werein agreement on exchange rates and that the ECB was in regularcontact with the Chinese authorities.
"The degree of mutual understanding on both sides of theAtlantic is particularly high and I appreciate that the U.S.authorities, including Chairman Bernanke and Treasury SecretaryGeithner, indicated that a strong dollar is in the interest ofthe U.S. economy, which is also in the interest of the globaleconomy itself," Constancio said. He was referring to BenBernanke, chairman of the Fed, and Treasury Secretary TimothyGeithner.
"The ECB also has regular exchange of views with Chineseauthorities in an open and candid fashion," he said. (Editing by Leslie Adler)
Currencies
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