G20 finance ministers plan to head off global currency war amid growing trade tensions
George Osborne and Timothy Geithner, the United States’ Treasury Secretary, will meet their counterparts from China, India and Japan on Friday in the South Korean city of Gyeongju for the latest round of G20 talks. The threat of a ‘currency war’, with countries jockeying to devalue their currencies in order to boost exports, is squarely at the top of the agen
A leaked draft copy of the summit’s communique said G20 members would agree to “move towards a more market-determined exchange-rate system” and “refrain from competitive undervaluation”.
Brazil, Australia and Canada all urged the G20 to reach a solution on the issue, with Luiz Inacio Lula da Silva, the Brazilian president, saying: “The whole world is seeing there is a currency war and we need to discuss this in the G20 and find a definitive solution to it.”
The US is determined to agree on “fair” exchange rate rules, and Mr Geithner told the Wall Street Journal that he would “like countries to move toward a set of norms on exchange-rate policy”.
While he believes the euro, yen and the dollar are roughly “in alignment”, he repeated that the Chinese yuan remains undervalued.
Mr Geithner said he would even push his colleagues to agree on numerical targets for their trade balances, a move that India immediately rebuffed. “I am not sure that this will be supported by very many emerging economies”, said an Indian official.
Mr Geithner said encouragement from the rest of the G20 could convince China to speed up the yuan’s rise.
Since China depegged its currency from the dollar in mid-June, the yuan has risen some 2.6pc . “If China knew that if it moved more rapidly, other emerging markets would move with them, it would be easier for them to move,” Mr Geithner said.
However, Chinese officials have argued that any sudden rise in their currency could sink tens of thousands of export companies, who operate on the thinnest of margins.
“Many of our exporting companies would have to close down, migrant workers would have to return to their villages,” said Wen Jiabao, the Chinese prime minister, earlier this month. “If China saw social and economic turbulence, then it would be a disaster for the world.”
The draft communique, which is likely to change over the course of the summit, also said the G20 would minimise “adverse effects of excess volatility and disorderly movements in exchange rates”, an apparent sop to China’s concerns.
China also said the tendency of the US to print new money to stimulate its economy is causing a gross distortion in the world economy as investors flee the dollar and seek higher returns elsewhere, particularly in emerging markets. The draft said the G20 would “work to manage more effectively rapid and volatile capital inflows into emerging countries”.
Since the financial crisis the G20, a disparate collection of rich and developing countries, has replaced the G7 as the most important forum for global economic policy-making. However, there remains widespread scepticism about whether a collection of countries as diverse as Indonesia, Turkey, Japan and Germany can agree on anything but the broadest brushstrokes.