G-20 Backs Gradual Currency Moves, Trade Monitoring

Friday, 12 Nov 2010 09:43 AM

 

  Comment  |
   Contact  |
  Print   |
    A   A  
  Copy Shortlink
Group of 20 leaders agreed to develop early warning indicators to head off economic turmoil as emergency talks on Ireland’s debt crisis clouded their summit.

Finance ministers from the G-20 will work next year on a set of so-called indicative guidelines designed to identify large economic imbalances and actions needed to fix them, according to a joint statement released as the Seoul summit came to a close.

The agreement may shift the focus away from the U.S.-China dispute over the value of the yuan that has hurt ties between the world’s two biggest economies because it puts pressure on all G-20 nations to work to limit their trade and savings imbalances, Morgan Stanley nonexecutive Asia Chairman Stephen Roach said.

“It really gives the G-20 a far more workable framework to address the broad subject of imbalances,” Roach said in an interview. “This is a far more reliable alternative than to try to resolve a multilateral problem through a bilateral currency” dispute.

A U.S. government official said the meeting also produced a consensus that exchange-rate changes are to happen gradually. The American official, speaking to reporters on condition of anonymity, said the U.S. was encouraged by progress on the Chinese currency.

IMF Help

The guidelines will be worked out with the help of the International Monetary Fund and will be developed next year when France holds the presidency of the G-20, according to the statement.

A U.S. government official said the meeting also produced a consensus that exchange-rate changes are to happen gradually. The American official, speaking to reporters on condition of anonymity, said the U.S. was encouraged by progress on the Chinese currency.

The agreements emerged after leaders struggled to find ways to address trade imbalances as China rejected policy prescriptions that fault its exchange-rate policy and directed criticism at monetary easing in the U.S.

“The Chinese jealously hold their right to be flexible, their right to adjust,” said Donald Brean, co-director of the G-20 Research Group at the University of Toronto. “They would not want to commit to something that is so rigid with respect to their trade imbalances. That is not to say they don’t understand the underlying forces that are causing them.”

Trade Imbalances

China has run up a $201 billion trade surplus with the U.S. for the first nine months of this year, more than the U.S. deficit with the next seven-largest trading partners combined, according to Commerce Department data.

China’s benchmark Shanghai Stock Exchange Composite Index fell 4.6 percent today, the most of any market in Asia, and commodities tumbled amid speculation China is preparing to raise interest rates.

G-20 leaders are meeting as Irish bond yields are soaring on concern the European Union will need to step in with a bailout. The leaders are discussing the Irish debt crisis and will probably issue a joint statement later today, said Steffen Seibert, a spokesman for Merkel.

The pivotal roles China and the U.S. must play to get a breakthrough at the G-20 was underscored by an 80-minute meeting between Presidents Barack Obama and Hu Jintao yesterday dominated by a discussion about exchange rates.

Geithner’s View

U.S. Treasury Secretary Timothy F. Geithner has said that the yuan remains undervalued and that China needs to show a continued commitment to allow its currency to rise further over time. China has argued that a quick increase in the yuan’s value would cause economic and social disruption.

The People’s Bank of China set the reference rate for yuan trading at 6.6239 per dollar today, the strongest since a peg ended in July 2005. The yuan has risen about 3 percent against the U.S. currency since June 19, when China said it was allowing a resumption of appreciation that was frozen in 2008.

Geithner said last month that a ratio for current-account surpluses or deficits of 4 percent of gross domestic product was “likely to emerge as the basic benchmark countries look to,” governments from China to Germany rejected any move to set a target for current-account surpluses or deficits as a percentage of GDP.

“We agreed that we can’t measure sustainable growth and imbalances with one indicator, but that we need a number of indicators,” German Chancellor Angela Merkel told reporters. “These indicators will now have to be discussed, and that’s what the finance ministers will in detail next year.”


© Copyright 2014 Bloomberg News. All rights reserved.

  Comment  |
   Contact  |
  Print   |
  Copy Shortlink
Around the Web

Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Country
Zip Code:
Privacy: We never share your email.
 

You May Also Like
Around the Web

Most Commented

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved