Money Matters, Simplified.
G20 reach consensus on economic imbalances
by Anter Prakash Singh - February 21, 2011 - comments
The group has decided to analyze the reasons behind the recent surge in the prices of commodities, food and oil.
The finance ministers and central bank governors of G20 countries succeeded in overcoming the opposition of China to setting up of a global early warning system which can detect economic crisis threatening to hamper the growth of world economy.
The talks were held in Paris and concluded on Feb. 20.
Yardstick to forewarn about global slowdown
The main stress remained on smoothening the imbalanced investment and trade flow, which led the world economy to fall into recession and credit crisis.
For this it is important to select the yardsticks which will be constantly monitored any imbalances like private saving rates, budget deficit rates and external imbalances.
This yardstick will enable the U.S. and European countries to alert China about the impact of its currency, Yuan, which the U.S. Secretary for treasury, Timothy F. Geithner terms as “substantially undervalued.”
The G20 members stressed on enhancing currency flexibility and making efforts to avoid, “disorderly movements in exchange rates.”
The Chinese representatives first resisted to the proposals during the all night talks but finally relented when some alterations were made in the language of the proposals.
Chief Currency strategist at the Goldman Sachs, Thomas Stopler, said, “The bottom line is that we see slow but steady progress towards better international policy coordination aiming at reduced global imbalances.”
“The G-20 statements are visibly becoming the result of compromise about words and specific expressions,” added Stopler.
First meeting of this year
This was the first meeting after inflation started to replace the weak growth which posed the biggest threat to its members.
G20 countries account for the 85 percent of the global economy. Some officials have noted the signs of ‘overheating’ in some of the emerging markets.
The group has decided to analyze the reasons behind the recent surge in the prices of commodities, food and oil.
The G20 members stressed on enhancing currency flexibility and making efforts to avoid, “disorderly movements in exchange rates.”
The main intention behind this statement is to prevent the recurrence of national trade imbalances which caused the worst global recession seen in seven decades.
The main worry is that new distortions can start building up despite global economic recovery gathering momentum.
The International Monetary Fund has predicted that China will remain at the top as the world’s fastest growing economy in 2011 with a growth rate of 9.6 percent. The U.S. economy is expected to grow at the speed of 3 percent growth.