The G20 nations will vow at a weekend meeting to “refrain from competitive undervaluation” of their currencies, according to an early draft of a statement.
The draft obtained by Dow Jones Newswires suggests that finance ministers of the world’s top economies may take a clear stand against a feared global currency war.
The G20 will “move towards [a] more market-determined exchange-rate system,” the draft said, reflecting an often-used US expression meant to discourage countries from intervening in currency markets.
However, it also said the group would minimize “adverse effects of excess volatility and disorderly movements in exchange rates” — apparently reflecting concerns of Asian and other export-reliant nations about rapid rises in their currencies.
The statement could change following the meeting today and tomorrow of ministers and central bank governors in the southeastern South Korean city of Gyeongju.
However, a G20 official with the host nation said a reference to currencies would likely remain and the draft wording was seen as neutral.
The US and EU accuse China of keeping its yuan undervalued to benefit exporters, while Beijing says Washington’s loose monetary policy is causing emerging markets to be swamped with destabilizing capital inflows.
China said that expectations of US “quantitative easing” — a move to pump more US dollars into the market — are causing investors to chase higher yields.
Taiwan’s central bank Governor Perng Fai-nan (彭淮南), has warned that nearly US$12 billion of suspected “hot money” has flowed into the nation in a bet that the local currency will continue to rise, an aide said yesterday.
US Treasury Secretary Timothy Geithner said he would push his G20 counterparts to “rebalance” the global economy away from US consumption and push “fair” currency rules.
He told yesterday’s Wall Street Journal the meeting was a chance to push “our partners to put a little more flesh on the skeleton of the rebalancing commitment.”
“The rest of the world wants us to save more — and that means less US demand for the rest of the world. Demand is going to have to come from other sources,” he said.
Brazilian President Luiz Inacio Lula da Silva urged the group to reach a solution to currency disputes.
“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,” he said on Wednesday in Brasilia.
Australia wants to see all countries including China move to market-based exchange rates, Australian Treasurer Wayne Swan said on Wednesday.
Swan said G20 ministers are unlikely to decide any “definitive outcomes” on the currency battles or on broader structural issues threatening sustainable global growth, but would prepare the ground for the Nov. 11 to Nov. 12 summit in Seoul.
He said the yuan “is not solely responsible for imbalances in the global economy.”
The IMF, in its regional outlook, urged Asia to work to rebalance growth.
“With external demand from advanced economies unlikely to return to pre-crisis trends in the foreseeable future, Asia will need stronger domestic demand to maintain robust growth,” it said.
Several top officials, including South Korean President Lee Myung-bak, have warned that failure to settle currency disputes could fuel protectionism and damage the world economic recovery.
“Our cooperation is essential,” the draft statement said, to maintain a recovery that is “moving ahead, albeit in a fragile and uneven way.”
“Recent financial market strains have receded, in part due to our timely and concerted policy efforts. However, many downside risks remain,” it said.
G20 members vow to play their part “in sustaining ongoing growth and reducing global imbalances in a collaborative way,” the draft said.
The group will “work to manage more effectively rapid and volatile capital inflows into emerging countries,” it said, also pledging structural and regulatory reforms.
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