Tuesday, October 26, 2010
The Group of 20 (G20) of the world’s leading developed and developing countries’ finance ministers agreed on Saturday to pursue a plan that would avoid dangerous currency devaluations and would also would attempt to reduce trade imbalances. The plan was introduced by the United States, and the G20 meeting was held in South Korea.
The plan was announced amid rising worries of a “currency war” that would lead to devalued currencies in order to get an export advantage and would damage the global economy. “Our cooperation is essential. We are all committed to play our part in achieving strong, sustainable and balanced growth in a collaborative and coordinated way,” a statement released by the G20 said.
On the topic of trade imbalances, the G-20 stated that “excessive imbalances” would be “assessed against indicative guidelines to be agreed.” This statement was weaker than a commitment proposed by United States Treasury Secretary Timothy Geithner, which would keep trade imbalances “below a specified share” of GDP for the next few years. This proposal was met with strong opposition from export-based economies such as Japan, whose Finance Minister Yoshihiko Noda argued that specific targets were “unrealistic”, but approved of unspecific “guidelines”. He added: “There are many perspectives on the current account issue. Every country has a different situation when it comes to surpluses and deficits. So we need to study this carefully.”
The United States said that they will continue to push for numerical targets and specific time frames at next month’s South Korean summit, where the heads of state of the G20 will convene. “If the world is going to be able to grow at a strong, sustainable pace in the future . . . then we need to work to achieve more balance in the pattern of global growth as we recover from the crisis,” US Treasury Secretary Geithner declared. The finance ministers also set China on the track to floating its currency more, and overhauling the International Monetary Fund (IMF) to give more representation to developing powers such as China and India.
The G20 was created in 1999, includes both developed and developing countries, and represents 85% of the world’s economy. The G20’s heads of state will meet in Seoul, South Korea, next month.