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November 1, 2010 9:46 pm
US officials said they will push for firmer commitments at the forthcoming G20 meeting in Seoul to correct global economic imbalances, but played down the chance of a rapid resolution of tensions over China’s currency.
Speaking on Monday ahead of next week’s meeting of G20 heads of government in South Korea, Mike Froman, the White House deputy national security adviser and working-level representative to the grouping, said it was a chance for incremental change.
“We do not expect the China currency issue or the imbalance issue to be solved once and for all in Seoul,” he said. “This is part of an ongoing effort.”
Disputes over the role of the Chinese currency in worsening global current account imbalances have intensified, amid concerns of a “currency war” as many countries seek to prevent exchange rates rising. Several emerging market countries have been restricting capital inflows or intervening in currency markets.
The US is seeking to consolidate what it says was considerable progress at the recent meeting of G20 finance ministers, where countries shifted the focus from currencies to preventing large surpluses and deficits. Ministers discussed setting a norm for current account imbalances of less than 4 per cent of gross domestic product, with persistent breaches triggering negotiations for its reduction. Other attendees claimed the US proposed the 4 per cent figure though American officials denied it.
On Monday Lael Brainard, the US Treasury undersecretary for international affairs, referred to the numbers as “indicative ranges” rather than “targets”.
She said: “What we’re looking for is agreement around the basic proposition that it’s very important for surplus economies, no less than deficit economies, to be reducing imbalances, and to make sure that exchange rates are facilitating that adjustment.”
At the finance ministers meeting, attendees said that China initially declared that it might be open to setting targets but backed away after talks with Germany, which dislikes the idea.
In one version of a letter to G20 countries ahead of the Seoul summit, José Manuel Barroso, European Commission president, and Herman van Rompuy, president of the EU council of ministers, said: “We have presented a proposal to the G20 on how to address these issues ... without having to resort to controversial quantitative targets, as suggested by the US.”
Many emerging market and EU countries have accused the US of making imbalances worse. They say the prospect of more quantitative easing has encouraged investors to borrow cheaply in dollars and buy emerging market assets in the hope of higher returns.
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