Although an accord of sorts was reached by finance ministers of the G20 at their meeting in Paris on Saturday, exchange rates and currency reserves, which are truly representative indicators of global economy imbalance, were blocked from inclusion by China. The deal is thus far less effective than it might have been.
According to Reuters, China insisted that actual exchange rates and currency reserves be omitted from the list of indicators that the G20 nations intend to use as a barometer of economic imbalances among nations. Christine Lagarde, France’s finance minister, insisted, however, that the G20 accord reached on Saturday was significant in determining a means of coordinating economic policies in the quest to ward off another financial crisis.
At a news conference, Lagarde told reporters, “It wasn't simple. There were obviously divergent interests but we were able to reach a compromise on a text that seems to us to be both balanced and demanding in its implementation.” She also said that the indicators were not binding, but would be instrumental in drafting guidelines to coordinate economic policies and to an assessment process to be conducted by the countries.
Among the indicators incorporated into the accord were public debt; fiscal deficits; private savings and borrowing; trade balance; and additional components of balance of payments, such as net investment flows. However, Lagarde conceded that reserves were no longer a part of the equation. She did say, however, that there is a mechanism that will consider exchange rates in the assessment of the overall balance of payments.
Xie Xuren, the Chinese finance minister, departed from the conference without talking with reporters, but Western and Japanese officials said that indicators would nevertheless include foreign reserves and the balance of payments, even if specifying those two factors had not been done in an attempt to soothe China.
Yoshihiko Noda, Japan’s finance minister, told reporters, “We needed to be inventive about wording in the communique in consideration for a country that did not want to use the term ‘current account balance’…. The statement lists components of the current account balance.