G20 moves closer to agreement on currencies

By Agency Reporter

Monday, 25 Oct 2010 

SOUTH KOREA: A high-level meeting of the world‘s major economies is moving closer to an agreement on policies to reduce currency tensions that threaten the global recovery, a United States official was quoted by Associated Press.

But any accord from the meeting of Group of 20 finance ministers and central bank governors is unlikely to include specific targets for reducing the vast trade surpluses that emerging nations, China particularly, have with the West.

A statement the group plans to issue later Saturday will likely include language, saying that emerging nations should move toward market-oriented exchange rates and refrain from competitive devaluations of their currencies, a US administration official said on the sidelines of the final day of the two-day meeting.

The official, who spoke on condition of anonymity because of the sensitive nature of the negotiations, also said that the statement was expected to call for advanced economies to be on guard against volatility and disorderliness in exchange rates.

Describing such steps as voluntary, the official said they would likely help emerging nations deal with the recent problem of large inflows of foreign money pushing their currencies higher and lead to more flexible exchange rates.

”What the commitments here do is acknowledge that persistent large imbalances surpluses no less than deficits are something we all need to work together to reduce,” the official said. ”And they do so in a way that will bolster the adjustment of exchange rates and facilitate global adjustment.”

The meeting of G-20 finance mandarins in the South Korean city of Gyeongju comes just two weeks after their meeting in Washington failed to iron out currency differences that have led to fears of a trade war that could trigger another economic downturn.

In such a scenario, countries devalue their currencies to gain a competitive advantage in a world economy that has yet to fully recover from the global financial meltdown two years ago. Trade barriers are erected in response, hitting international commerce and reversing the economic recovery.

Nations in Asia and other regions have been trying to stem strength in their currencies amid sustained weakness in the US dollar out of fear their exports will become less competitive in world markets. At the same time, China‘s currency has been effectively pegged to the dollar, provoking an outcry that it is being kept artificially low and giving China‘s exporters an unfair advantage.

Source: Punch

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