The US won G20 backing yesterday to tackle groaning trade imbalances as the world’s biggest industrial nations vowed to avoid tit-for-tat currency devaluations.
After all-night talks among their senior officials, G20 finance ministers forged an agreement in South Korea to “refrain from competitive devaluation of currencies” and aim for “more market-determined exchange rate systems.”
South Korean Finance Minister Yoon Jeung-hyun said the two-day G20 meeting had laid to rest fears of a “currency war” between struggling debtors such as the US and exporting powers such as China.
The outcome will “terminate the controversial currency issue now,” he told a news conference, while conceding that it was “very difficult” for the G20 to reach agreement.
In a statement, the finance ministers vowed to “pursue the full range of policies conducive to reducing excessive imbalances and maintaining current-account imbalances at sustainable levels.”
The IMF won greater power to oversee G20 commitments. It is tasked with compiling periodic reports that investigate how a country’s economic policies can damage major trading partners.
IMF managing director Dominique Strauss-Kahn said the G20 ministers had, in parallel, struck a “very historic” deal to revamp the Washington-based financial watchdog to give China and other emerging powers a greater say.
Under the deal, which has been years in the making, Europe agreed to cede two seats on the IMF board to accommodate developing nations.
China will leapfrog Germany, France and Britain in the IMF’s power rankings, with its quota share rising to 6.19 percent from 3.65 percent. India will be in 8th spot, Russia in 9th and Brazil in 10th, according to the Russian finance ministry.
Together, the four — known by the acronym BRICs — will have 14.18 percent of IMF quotas.
Emerging markets as a whole will have a 42.29 percent share, which the G20 said was likely to rise further following a comprehensive review of the quota formula due by January 2013.
The G20 also signed off on a deal for tighter regulation of banks and big finance firms blamed for triggering the global economic crisis, raising the amount of top-quality capital that banks must hold in reserve for a rainy day.
Even without the IMF reform deal, the G20’s mandate for the fund to increase its watchdog role over currencies “would have been enough to make my day,” Strauss-Kahn said.
US Treasury Secretary Timothy Geithner, who was to head to China today for economic talks, renewed US backing for a “strong dollar” and said a “gradual appreciation” in the currencies of major trade-surplus nations was required. Geithner had suggested that G20 members assign a specific limit for their current account surplus or deficit — 4 percent of GDP.
However, no numerical target was given in the final statement. French Finance Minister Christine Lagarde said the G20 agreed that it was “not necessary to impose the measures with a nasty stick.”
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