Leaders of the G20 group of major economies have agreed to avoid
“competitive devaluation” of currencies after talks concluded in the South
Korean capital, Seoul.
Leaders agreed to come up with “indicative guidelines” to tackle trade
imbalances affecting world growth.
Tensions had been high between some delegations over how to correct distortions
in currency and trade.
But the agreement fell short of a US push to limit trade deficits.
Some fear the conflict, chiefly between China
and the US,
may threaten global growth.
US President Barack Obama said there should be no controversy about fixing
imbalances “that helped to contribute to the crisis that we just went through”.
“Exchange rates must reflect economic realities,” he said.
“Emerging economies need to allow for currencies that are market-driven.
This is something that I raised with President Hu of China
and we will closely watch the appreciation of China’s currency.”
‘Slowly, slowly’
Some of what the G20 agreed had already been done by their finance
ministers – the commitment to refrain from competitive devaluations, for
example. The summit did not manage to harden that up, as had been suggested,
with a promise to avoid competitive undervaluation. That would have put more
pressure on.
On the related issue of global imbalances, which is partly about international
trade, they agreed to develop indicators to show when imbalances need to be
reduced. That work is due next year.
It is progress but slow, rather like China’s commitment to move to a
market-based exchange rate. They say they will do it, but in their own time, in
other words not tomorrow. So there was no breakthrough in these key areas, but
the very public endorsement of political leaders perhaps gives a little more
weight to such commitments as they have made.
Washington says that China’s currency, the yuan, is artificially weak
and gives Chinese exporters an unfair advantage as well as leading to Beijing amassing huge
foreign reserves.
However, Chinese officials argue that Beijing has an “unswerving” commitment to reform
its currency regime, but that global economic stability is needed to achieve
it.
UK Prime Minister David
Cameron said progress was being made on the issue of imbalances.
“Slowly, slowly China
is moving into a position of actually increasing domestic consumption,
rebalancing its economy,” he said.
However, the agreement to develop new guidelines to prevent so-called
“currency wars” fell well short of the 4 per cent limit on national trade
deficits and surpluses proposed by the US, which had been blocked by China and
Germany – the world’s two largest exporters.
“This was never going to be solved overnight,” Mr Cameron added. And South Korea
President Lee Myung-Bak admitted that “on the foreign exchange rate issue,
principles were agreed at the finance ministers’ meeting, but there was no word
on when and up to how much we will implement them”.
‘Fractious’ negotiations
The G20 leaders also gave their backing to reforms designed to give
emerging economies such as China
a bigger say in the International Monetary Fund.
In their communique, leaders said they were delivering “a modernised
IMF that better reflects the changes in the world economy through greater representation
of dynamic emerging markets and developing countries”.
UK sources say that officials
from the UK, France and Russia
had to be called in the early hours of this morning after “fractious” negotiations
between China and the US broke down
in “acrimony”.
But at the end of the summit, the European Union said in a statement
that it was “satisfied” with the outcome.
The G20 also committed itself to completing soon the long-running Doha
Development Round of global trade talks, saying that 2011 presented a “critical
window of opportunity, albeit narrow” to conclude the discussions.
And it signed the Seoul Development Consensus for Shared Growth, committing
it to work in partnership with other developing countries on trade, development
and investment.
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