Discrepancies In Currency Policies
The G20 can grow faster, but only if the advanced countries—beginning with the United States and Germany—address their own demand deficits. G20 developing countries, which are straining capacity and at risk of inflation, cannot, do much more than they are doing already.
Moreover, the correlation between countries that can stimulate demand and those that run current account surpluses is weak, suggesting that setting current account targets (even if countries were prepared to adapt policies so as to meet them, which we doubt) misses the point. Instead, leaders at the G20 summit in Seoul should agree that each participant will grow domestic demand in 2011–12 at the fastest sustainable pace.
The IMF should be mandated to work with each country to develop an appropriate plan for growth that reflects its conditions. Group of 20 nations failed to resolve differences over currency policies blamed for distorting global trade and investment, hours before their leaders gather, a South Korean official said.
A meeting of finance ministers and central bankers last month agreed to move toward “more market-determined exchange rate systems” and “reducing excessive imbalances” assessed against “indicative guidelines to be agreed.”
Areas of Agreement [/b]
Negotiators are making progress on discussions over building a financial safety net and on development issues, Kim said. The G-20 groups the largest advanced and emerging-market economies, including the U.S., Germany, Japan, China, Brazil and India.
U.S. Treasury Secretary Timothy F. Geithner last month said that a 4 percent of GDP ratio was “likely to emerge as the basic benchmark countries look to.” He refrained from repeating that guideline at a gathering of finance ministers from the Asia-Pacific Economic Cooperation forum in Kyoto, Japan on Nov. 6.
Underlying a U.S. push to address the imbalances is the assessment by the Federal Reserve that a surfeit of Asian savings helped spark the credit boom earlier this decade, which ended in the biggest financial crisis since the 1930s. The meltdown gave rise to the first G-20 summit, in November, 2008.
Now, officials from Asia to Latin America counter it’s the American central bank’s liquidity injections that are warping global capital flows and driving down the dollar. The central bank of South Korea, the G-20’s host nation this year, today joined in that assessment of the Fed’s Nov. 3 decision to buy $600 billion of Treasuries, saying it will weaken the dollar.