This post hearkens back to two earlier posts.  The first the Conference in Nanjing at the end of last month on the international monetary system, “A Seminar on Money”  bringing together finance ministers, bankers and experts.  The second was participation by a number of  global governance bloggers over the question of the effectiveness of the G2o, “Punching Below its Weight” and “It’s About “Effectiveness” Stupid“.

So here we are a step further.  The G20 finance ministers met just last Friday during the Spring Meetings of the IMF and the World Bank in Washington.  And at the end of the meeting the finance ministers and central bankers announced their agreement on the criteria for IMF scrutiny of countries.  The communique ending the meeting repeated that the G20 had agreed on a set of indicators to be used to assess persistent imbalances:

(i) public debt and fiscal deficits; and private savings rate and private debt;

(ii) and the external imbalances composed of the trade balance and net investment income flows and transfers whilst taking due consideration of exchange rates, fiscal, and monetary and other policies.

Now the bolded element is where the real compromise in the February G20 finance ministers efforts occurred.  The Chinese wanted no mention at all of exchange rates and had forced exchange rates off the table but the final communique brought them back in this manner.

With this Friday communique (April 15th) , G20 finance ministers agreed on indicative guidelines against which each of the indicators will be examined.  A number of modeling approaches was identified.  And it was then agreed that where at least two of the four approaches showed large imbalances those countries will be assessed in greater depth.  In carrying out the assessment, the communique indicated that, “we will take due account of the exchange rate and monetary policy frameworks of members” – read this as China and the United States.

And the finance ministers and central bankers agreed on a list of countries to receive special scrutiny from the IMF.  While the list was not published the measures chosen indicate that these countries will include: the United States, China, Japan, Germany, France, the UK and the EU.

Another incremental step – and that is all – but step by step the G20 is building a new framework to evaluate global imbalances and then seek, hopefully, to recommend changes to current macroeconomic policy.