October 23 2010US pushes plan on exchange rates
Ministers from the world’s leading economies were locked in debate on Saturday over an American proposal aimed at defusing rising global tensions over exchange rate policy, with the US claiming that it was overcoming resistance.
During an all-night meeting in South Korea of finance ministers from the G20 group of countries, the US called on nations to cap current account surpluses at an unspecified share of national income, a new tactic to encourage faster appreciation in the Chinese renminbi.
Ahead of the meeting, the plan was criticised by Japan and Germany, with China yet formally to respond. But US officials claimed on Saturday that the plan was making progress during the talks.
According to a G20 official, the statement from the meeting was due to urge countries to “refrain from competitive devaluation” and pursue a full range of policies conducive to reducing current account imbalances.
But it warned countries, including those with reserve currencies – a clear reference to the US – to be mindful of excess volatility in exchange rates. China and other emerging markets have criticised Washington for creating volatile capital flows by pumping more cash into financial markets.
Ahead of the meeting, the US current account proposal was criticised by Germany and Japan, both countries with large trade surpluses, with ministers from France, Canada and Australia more supportive.
The finance ministers’ meeting is preparing for a summit of the G20 heads of government in Seoul in the middle of November, in which currencies are likely to feature prominently.
The exchange rate issue has been pushed to the top of the G20 agenda by months of wrangling between the world’s leading economies over allegations of currency manipulation.
China has run large trade surpluses for a decade but refuses to allow its currency to rise appreciably, because it says the country’s stability depends on a gradual reform of currency policy and the jobs created by exporters.
Ahead of the meeting, the US circulated a letter from Tim Geithner, US Treasury secretary, which said that emerging markets with “significantly undervalued currencies” and adequate reserves should allow their exchange rates to adjust to levels consistent with economic fundamentals”.
A senior G20 official said that the fact that the US had circulated the letter was a hopeful sign that China was open to discussing the issue, but Reuters reported that China had privately rejected binding itself to a specific target.
Countries, including Japan, South Korea and Thailand have either intervened in currency markets recently or introduced other measures to keep the value of their currencies down to support exports.
Lee Myung-bak, South Korea’s president, joked that he would not let any of the ministers leave until a deal was done.
“If you do not reach an agreement, when you come to leave, we may not operate buses, trains or planes,” he said.
US officials also said they had gained a greater role for the International Monetary Fund in watching over countries’ policies.
