A MEETING of the G20 group of the world’s 20 major economies agreed to avoid competitive devaluations to prevent a trade war, but fell short of bringing in targets to reduce trade tensions threatening the balance of the global economy.
The broader message from the meeting in Gyeongju in South Korea was a powerful recognition of the shift in economic power to emerging nations away from the western industrial powers. The G20 finance ministers struck a surprise deal giving fast-growing countries more voting power in the executive of the International Monetary Fund.
“Our co-operation is essential,” the G20 communique said, while the countries also promised to keep their current account balances sustainable. “We are all committed to playing our part in achieving strong, sustainable and balanced growth in a collaborative and co-ordinated way.”
The G20 has been around since 1999 and includes both rich and emerging countries, but it really came into its own after the financial crisis in 2008 when countries such as China called for a broader global forum for addressing the world’s economic woes, to include fast-growing economies.
The G20 has worked since then to co-ordinate economic and interest rate policies to boost growth and encourage stricter regulation of the financial institutions blamed for causing the crisis.
During the talks, the US had tried to win broad support for an initiative that would limit current account imbalances to 4 per cent of GDP, which was clearly aimed at trimming China’s trade surplus.
Visiting China after the G20 meeting, US treasury secretary Timothy Geithner met China’s vice premier Wang Qishan to discuss bilateral economic matters, and afterwards said China needed more flexibility to run its own policies in a way that fits China.
“And that requires that their exchange rate move up over time as they’re now doing and we want to see that continue. They’ve got a ways to go but I think they’re committed to do that,” he said.
The US treasury chief has delayed a decision on whether to declare in a report that China manipulates its currency for export advantage. Many economists in the West and US politicians, fearful of the way cheap Chinese imports have damaged the job market in the US, say the yuan is at least 20 per cent undervalued.
Mr Geithner said China was actively engaged on global foreign exchange issues, and the reason China believed that allowing the yuan to appreciate against the dollar would be in its interest was because it does not want the US Federal Reserve to control its monetary policy.
“We’ve had a long period where the major economies, principally Japan, Europe and the US, bore all the burden of co-operation on exchange rate questions,” he said. “But the world has changed dramatically and it’s very important that we’re discussing these things with China, India, Brazil, with the emerging market economies all around the world that are growing so rapidly.”
