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Last Updated:[16-02-2011 00:38:49 EDT] Zoom in Zoom out Back to Tradenews

Trade and Monetary Issues Top Agenda at G-20 Meeting

tradenews Developed economies still recovering from the financial crisis are looking for ways to regain momentum as the global economy shifts in favor of China and other emerging markets.

That task will be high on the agenda when finance ministers of the Group of 20 leading economies meet here this week, three months after President Obama and other G-20 leaders sparred at a tension-filled gathering in Seoul over how to resolve the trade, currency and monetary imbalances that are widening a divide in the world economy.

Signs of trouble that had worried officials before the global financial crisis — volatile capital flows, exchange rate pressures and rapidly growing foreign-exchange reserves — have been gathering new momentum in emerging markets. Dominique Strauss-Kahn, managing director of the International Monetary Fund, warned in a recent speech that these issues could cause the next crisis if left unresolved.

France, which took over the rotating chairmanship of the G-20 in January, is leading a drive to forge guidelines that would warn of differences and prompt dialogue.

Officials meeting in Paris on Friday and Saturday will debate which aspects of a country’s economic performance should be used to help their peers identify potential problems, like current-account balances or trade balances, Christine Lagarde, the French finance minister, said at a briefing Monday.

“China saves and exports,” Ms. Lagarde said. “Europe consumes. The U.S. borrows and consumes.” She asked, “Is this a balanced model? Probably not.”

While decisions about which measurements to use may be technical, they are also politically tricky. China, in particular, has resisted suggestions by the advanced economies of the G-20 to include measures for exchange rates; Beijing has been criticized by other countries, notably the United States, for deliberately keeping its currency, the renminbi, weak to gain a trade advantage.

Exchange rates have become a particular sore point recently now that trade deficits and surpluses have started to rise in many countries, after falling during the financial crisis. On Monday, China reported a smaller-than-expected trade surplus for January as an increase in imports exceeded growth in exports for a fourth consecutive month.

But economists expect the surplus will climb after the Lunar New Year holidays, raising pressure on Beijing to speed up the appreciation of its currency.

Huge trade surpluses occur when a country exports more than it buys from abroad. That dynamic drew complaints from a number of countries at the Seoul meeting in November that others were artificially lifting trade by cheapening their currencies. The heated discussion, coming just after the Federal Reserve’s decision to pump $600 billion into the American economy, led Washington into a war of words with Beijing over whether each country was engaging in its own form of currency manipulation to stoke growth.

“This is not about pointing fingers,” Christian Noyer, the governor of France’s central bank, said of the efforts under way to measure imbalances. “It’s about identifying structural weaknesses.”
He called on countries to cooperate or risk seeing “brutal reversals.” Countries with high trade surpluses, for example, “may eventually hit a point where consumers won’t be able to keep buying at the same pace,” he said. “And those cutting into savings could eventually face higher interest rates.”

In a bid to defuse the currency issue, Ms. Lagarde said, the G-20 will also discuss making a transition toward a global monetary system that is “founded on several international currencies.”

Some officials of the G-20 and I.M.F., as well as in China, have been pushing for an alternate reserve currency based on a basket of virtual currencies overseen by the I.M.F. The renminbi could be included, Ms. Lagarde said.

“What we don’t want to do is to come back to fixed exchange rates or call into question the role of the U.S. dollar,” Ms. Lagarde said. The United States has responded coolly to the proposal in the past, but Ms. Lagarde said, “I’m sure the U.S. is interested in elements of the reform with a view to having a better balance between the dollar and other currencies.”

G-20 officials will also discuss ways to correct other imbalances, including the sharp surge in food prices, and a surge in prices for a wide range of commodities.

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