WASHINGTON, July 19: A change in currency policy will not by itself resolve the big trade imbalance between the United States and China, with further economic reforms needed, Federal Reserve chairman Ben Bernanke said on Thursday.

Bernanke, appearing before Congress for a second day for the central bank’s semiannual economic report, said China’s currency peg is only part of the problem that has led to a massive US trade deficit with Beijing.

“The currency, while an important issue, is probably in itself not going to solve the trade imbalance problem,” he told the Senate Banking Committee in response to a question.

“There are fundamental saving investment imbalances, both in the United States and abroad, which need to be changed in order to make real progress on the trade balance.”

Bernanke highlighted “the importance of structural changes in China’s economy such as increased safety net and improved financial systems that would increase the share of their output going to consumers and be consumed at home.”

”And the combination of currency appreciation and this other set of measures is really what’s needed to begin to move in the right direction,” he said.

On Wednesday, Bernanke told the House of Representatives that China would help its own economy as well as global trade imbalances by allowing the yuan to float freely.

Some lawmakers in Washington accuse Beijing of keeping its currency purposefully low to give its exporters an unfair advantage.

China revalued the currency by 2.1 per cent from 8.28 yuan in July 2005 and has since then allowed the unit to rise about six per cent.

In May, the daily trading band against the dollar was widened to 0.5 per cent from 0.3 per cent on either side of a central parity rate, in theory making it possible that the currency could appreciate more quickly.

Senator Christopher Dodd asked Bernanke to clarify a December 2006 prepared speech in which Bernanke said China’s undervalued currency is an “effective subsidy.”—AFP