Prime Minister Stephen Harper says he understands why his American counterparts are injecting money into their monetary system and he supports Washington's position that China must let its currency rise.
The U.S. recently poured US$600 billion into its monetary system to help stimulate its economy, a move that other countries say has unsettled the value of other currencies by devaluing the U.S. greenback.
But Harper told reporters Thursday that the U.S. has few options to revive its lagging economy.
Speaking at the G20 summit in South Korea, Harper said it would be too costly to the American deficit for Washington to consider further stimulus and there is not much more room for the U.S. Federal Reserve to drop interest rates.
"Under the circumstances, the quantitative easing policy is, in the short term, the only option available to the Federal Reserve," Harper said. "And I'm not sure anyone else has provided any compelling argument as to what alternative policy they would pursue in the short term."
The prime minister also said he is not confident that G20 leaders will be able to come to a resolution on trade imbalances and currencies -- the two key issues surfacing at the Seoul summit.
"They have to be addressed. Will they be addressed at this conference? I'm not so sure," Harper said Thursday.
"But I think we're getting a more frank discussion on these matters, that they do have to be resolved."
CTV's Ottawa Bureau Chief Robert Fife said if these matters are not solved, there is a concern that a so-called currency war could possibly develop between the United States and China.
"This is the big issue here really, there are real efforts to try to solve this," Fife told CTV's Canada AM from Seoul, where he is covering developments at the G20 summit.
In Seoul, U.S. President Barack Obama has argued that a recovery of the American economy will benefit other countries because the U.S. continues to be "the world's largest market and a huge engine for all other countries to grow."
Obama has signalled that he supports a balanced recovery for countries across the globe and believes there must be less trade imbalance between countries.
On the issue of currencies, the U.S. president said there should be no more "undervaluing currencies for competitive purposes," a remark referencing the U.S. position that China keeps its currency low to maintain an export advantage.
Showing support for his U.S. counterpart, Harper said that countries with pegged exchange rates -- China among them -- need to allow more flexibility in the value of their currency.
And he disagreed with suggestions that a low American dollar was the cause of current currency uncertainty. That, Harper said, comes as a result of these same countries not allowing their currencies to adjust to the direction of the global economy.
"The problem, in my judgment for Canada, is not the depreciation of the American dollar. It's the fact the Canadian currency is accepting a disproportionate burden because other currencies are not appreciating the way they should."
With files from The Associated Press and The Canadian Press
