The G-20 summit neared an agreement that appears to have settled the currency issues which until the summit remained at the center of bilateral relations between major economies in the world. But it is still unlikely to end the tension over currency and trade policies.
Most likely the agreement will confirm what was widely discussed earlier, and that is to let markets determine foreign exchange rates, without pushing China to raise specific commitments for the Yuan to rise. Officials remained undecided about how to discuss currency interventions.
According to The Wall Street Journal, a draft communiqué prepared Wednesday stated that nations would increasingly let markets determine currency rates; but officials remained undecided on how to discuss currency interventions.
G20 spokesman Kim Yoon-kyung said at a press conference in Seoul that “we’re still having a hard time reconciling the contrasting views of different countries, especially over the issues of currency and trade imbalances.”
“Each country was sticking to its original position,” he told reporters, adding that “voices were raised, they wouldn’t compromise, they actually had to keep the door open because the debates became so heated and they were lacking oxygen.”
When it comes to the economy, each nation is trying to pull the blanket to its own side, which is explainable in times of economic recession such as now. However the problem is, with each country trying to improve their own economic situations, and resolve the specific problems that are in their country, the world economy is global, which means that all the countries are interdependent. This is especially relevant when talking about major economies such as China and the United States.
China Daily cited Kim as saying the main issues revolved around arriving at a consensus on the currency and current account balances. The results should show up in the financial statement of the G-20 summit leaders, which will be released on Friday. Some of the other important issues are the financial regulatory reform and the reform of the International Monetary Fund.
Another thing that raised many discussions and heated debates were national economic policies. One of the most important questions that was discussed was the fact that the United States Federal Reserve plans to print another $600 billion long-term government bonds to rescue its economy, known as quantitative easing (QE). This caused a lot of criticism in the world.
Ma Delun, who is deputy governor of the People’s Bank of China, expressed his concern about the Federal Reserve’s spending spree, saying that it may undermine efforts to balance out global growth. He told Reuters that this “may add risks to the global economic imbalance, put pressure on emerging markets to adjust their international balance of payments and could also stir the formation of asset bubbles, all of which require our vigilance.”
On the other hand, President Obama defended the United States policy by arguing that growth in the country was the most important contribution that the U.S. can make to the global recovery and that its “fundamental strength” will ultimately determine the dollar’s value, reported Bloomberg.
Some of the other G20 members argue that the United States should have negotiated the question with other nations before making the QE policy decision, since this is a move that could have an effect on the entire economy.
Despite the many difficult questions that had come up during the summit, the President of the World Bank, Robert Zoellick, said that he does not believe that there is going to be a currency war.
“That is an overstated point”, he said.