G20 Gives Emerging Nations Greater Voice

U.S. proposal to limit account imbalances fails

The G20, in a surprise move, agreed Saturday to allow emerging nations a greater say in the International Monetary Fund and also agreed to stay away from competitive currency devaluations.

Although the U.S. tried to push through a measure that would restrain current account imbalances to 4% of GDP, the proposal failed and the U.S. came under fire from both China, at whom the measure was aimed, and Germany. The latter nation opposes the loosening monetary policy the U.S. has employed to help its domestic economy. According to a Reuters report on Sunday, Rainer Bruederle, Germany’s economy minister, said that the U.S. policy on easing was wrong, "An excessive, permanent increase in money is, in my view, an indirect manipulation of the (foreign exchange) rate.”

The two-day meeting of finance ministers in Gyeongju, South Korea, was in preparation for a G20 summit in Seoul on Nov. 11 and 12, and its primary purpose was to ward off the potential for a trade war. Emerging nations believe that the U.S., in putting so much cash into its banks, is bolstering exchange rates and asset prices, which undermines emerging nations’ export industries.

China, for its part, is afraid that the dollar will decrease in value because of so much easing, while the concern of the U.S. is China’s refusal to allow its currency to rise to a level that demonstrates its economic power and that would allow some reduction in its trade imbalance with the U.S. In fact, Treasury Secretary Tim Geithner (left) was expected to continue to press China to strengthen the yuan during talks with China’s vice premier Wang Qishan in Qingdao on Sunday. The two met briefly during a stopover at the airport in Qingdao after Geithner attended the G20 meetings.

The U.S. Embassy e-mailed a statement regarding the meeting that said only, "The two sides exchanged views on U.S.-China economic relations and the preparation for the (G20) Leaders' Summit in Seoul." It did not give further detail. Geithner had delayed a twice-yearly report to lawmakers in the U.S. about whether China manipulated the yuan for advantages in trade; instead, he had pressed the issue at the meeting in Gyeongju and planned to further do so in Seoul at the G20 leaders’ summit.

Perhaps the big news coming out of Gyeongju, however, is that Europe will give up two seats on the IMF’s 24-seat executive board and more than 6% of the IMF’s quotas will shift to emerging economies whose growth has not been reflected in their status within the IMF. China will become the third most powerful member, rising from sixth and moving ahead of Germany, France, and Britain, and India will also advance.

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