Fed Chairman Ben Bernanke
Fed Chairman Ben Bernanke - 
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DOUG KRIZNER: Fed chairman Ben Bernanke seemed all prepared to deliver some tough talk to the Chinese today. He's in Beijing as part of the U.S. trade delegation. The mission: Persuade China to spur domestic demand and narrow a record trade gap with the U.S. Now in prepared remarks Bernanke boldly called China's undervalued currency "an effective subsidy" for exporters. But when it came time to speak, he used less confrontational language. Ruth Kirchner reports from the Chinese capitol.

RUTH KIRCHNER: Usually U.S. officials argue that the low value of the yuan makes Chinese imports into the U.S. very cheap and stymies U.S. industries.

But Fed Chairman Bernanke took another approach.

He told his audience at the Chinese Academy of Social Sciences that China itself would benefit from a stronger Yuan.

BEN BERNANKE: Greater scope for market forces to determine the value of the Yuan would reduce an important distortion in the Chinese economy, namely the incentive for Chinese firms to focus on exporting rather than producing for the domestic market. A decrease in this distortion would induce more firms to gear production toward the home market, benefiting domestic consumers and firms.

Bernanke said stronger domestic consumption would make China less vulnerable to fluctuations in global demand.

It would also help to reduce China's massive trade surplus with the U.S.

In Beijing, I am Ruth Kirchner for Marketplace.

More from Bernanke's address:

BEN BERNANKE: Further appreciation of the RMB, combined with a wider trading band and with the ultimate goal of a market determined exchange rate would allow an effective and independent monetary policy and thereby help to enhance China's future growth and stability.

SCOTT JAGOW: In non-Fedspeak, that means, wouldn't China and the U.S. be better off if the Chinese stopped toying with their currency and let the market dictate its value?