So the G20 Finance Ministers and Central Bankers met this weekend in Paris to coordinate efforts on the question of global imbalances. Overcoming the deep skepticism in the global financial press especially, it appears the meeting took the first step in a long and arduous effort to build a system, which would tackle global economic imbalances and avert the next crisis.
The discussion of progress often seems like a witnessing a tug of war. The folks – reporters and analysts – at the FT, the WSJ and the NYT, especially, but not only, are quick to minimize progress and to forecast failure. With progress these same reporters grudgingly admit advance but declare the need to make significantly greater progress to ensure effective policy. And while it may be true that far greater coordination is required to avert a future economic crisis, still the skepticism is annoying and undermines the effort to – I suspect – assess the positive effort being made.
All that aside it does appear that material progress was made by the G2o Finance and Central Bankers this last weekend. It is interesting to note that such progress appears to have been made notwithstanding China’s objections to identify the factors that all countries could examine to determine if there were countries in trouble.
While China apparently insisted and the communique did not include precisely “real exchange rates” or “current account imbalances” the language of the communique includes language to, “take due consideration of exchange rate, fiscal, monetary and other policies.” Even this less precise language seems to be a victory of sorts since the communique appeared to have removed “exchange rates” altogether at the insistence of the Chinese only to be reinstated at the insistence of the US, Germany and the United Kingdom (See Ralph Atkins and Quentin Peel, “G20 strikes compromise on global imbalances,” FT, (February 19-20, 2011).
So where do the G20 go from here? Well the Framework Working Group (FWG) – chaired by India and Canada – moves forward to an April deadline. Ironically the Group will meet in Beijing and at that time hopes to conclude the “indicative guidelines” for each of the selected economic indicators. In addition the IMF has be tasked to provide a G20-wide assessment of these policies in time for the G20 Leaders Conference in November in Cannes France.
So the policy progress continues notwithstanding that national interests do not converge on global imbalances. What is apparent however, is that there is no reduction of the this debate to a clash between the West and the Rest – not even the BRICs. It would appear that China is isolated on its exchange rate policy. Brazil and the other large emerging market countries are not in the China camp. Brazil has spoken out strongly on currency manipulation – read that as the China fixed exchange – and the US quantitative easing.
Brazil is determined to raise the need for a new additional international reserve currency. Brazil, according to its Finance Minister Guido Mantega wants to expand the use of special drawing rights (SDRs) and to include both the Chinese renminbi and the Brazilian real in the SDR basket along with the US dollar, the euro, the yen and the British pound.
The US remains fixed – if not fixated – on the renminbi and the failure of Chinese authorities to allow the renminbi to appreciate more rapidly.
And Germany is determined that the analysis of global imbalances not be locked into ‘hard’ limits.
National interests remain divergent – but global governance progress is being made – nonetheless.