RPT-UPDATE 1-ECB's Liikanen: China should float yuan eventually

FRANKFURT, Nov 12 (Reuters) - All major currencies including the Chinese yuan should eventually have free floating exchange rates, European Central Bank Governing Council member Erkki Liikanen said in a television interview. "In the long term it is clear that all major currencies should move and float freely," Liikanen, who also heads the Bank of Finland, told a Finnish broadcaster in an interview conducted on Thursday but published on its internet site on Friday. "Then they reflect economic fundamentals and support economic growth best. This is a major challenge for China." ECB President Jean-Claude Trichet said earlier this month a steady rise in the yuan would help rebalance the world economy. Liikanen also told television station MTV3 that excessive foreign exchange volatility harmed economic growth and financial stability. "This is understood by all, and they respect this, and that is very important." He trusted U.S. policymakers when they said a strong dollar was in their interests. Asked about the Federal Reserve's decision to purchase government bonds, he said the U.S. central bank had taken into account the current economic situation. The Fed's decision to buy $600 billion of debt has drawn criticism from many other nations which contend it is generating global instability by strengthening their currencies against the dollar, inflating asset bubbles and fuelling inflation in their economies. Liikanen also said all countries understand that protectionism posed risks to getting the world economy on a sustainable path. "Free world trade is a central precondition for growth and well-being," he said. "Everyone understands that taking the protectionist path would be damaging." He declined to comment on whether Ireland might have to apply for EU aid, but said that while it was good to have an organisation such as the European Financial Stability Facility, in the end all countries should solve their own problems. He also joined other ECB policymakers in calling for more automatic sanctions for EU budget rule-breakers. (Reporting by Sakari Suoninen; Editing by John Stonestreet) Keywords: ECB/LIIKANEN (sakari.suoninen@reuters.com; +49 69 7565 1267; Reuters Messaging: sakari.suoninen.thomsonreuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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