By Kelly Olsen, AP
GYEONGJU — A summit of the world’s major economies is moving closer to an agreement on policies to reduce currency tensions that threaten the global recovery, a U.S. official said Saturday.
But any accord from the meeting of Group of 20 finance ministers and central bank governors is unlikely to include specific targets for reducing the vast trade surpluses that emerging nations, China particularly, have with the West.
A statement the group plans to issue later Saturday will likely include language saying that emerging nations should move toward market-oriented exchange rates and refrain from competitive devaluations of their currencies, a U.S. administration official said on the sidelines of the final day of the two-day meeting.
The official, who spoke on condition of anonymity because of the sensitive nature of the negotiations, also said that the statement was expected to call for advanced economies to be on guard against volatility and disorderliness in exchange rates.
Taking such steps would likely help emerging nations deal with the recent problem of large inflows of foreign money pushing their currencies higher and lead to more flexible exchange rates, the official said.
The summit of G-20 finance mandarins in the South Korean city of Gyeongju comes just two weeks after their meeting in Washington failed to iron out currency differences that have led to fears of a trade war that could trigger another economic downturn.
In such a scenario, countries devalue their currencies to gain a competitive advantage in a world economy that has yet to fully recover from the global financial meltdown two years ago. Trade barriers are erected in response, hitting international commerce and reversing the economic recovery.
Nations in Asia and other regions have been trying to stem strength in their currencies amid sustained weakness in the U.S. dollar out of fear their exports will become less competitive in world markets. At the same time, China’s currency has been effectively pegged to the dollar, provoking an outcry that it is being kept artificially low and giving China’s exporters an unfair advantage.
Asia becoming less reliant on exports for growth is seen as one of the adjustments that nations should make in the wake of last year’s recession to ensure more stability in the global economy and markets. Stronger currencies, meanwhile, would make imported goods cheaper and boost local spending as a contributor to economic growth.
The G-20, which has been around since 1999 and includes both rich and emerging countries, assumed the role of global economic leader following the worldwide financial crisis. The Group of Seven advanced nations faced criticism that it was too narrow a forum and failed to represent the voices of China and other fast-growing countries such as India.
Since the crisis, the G-20 has pursued major reforms to the global economy and financial system, such as attempting to coordinate economic and interest rate policies to spur growth and forge stricter regulation of banks and other financial institutions seen as responsible for the meltdown.
The current meetings come ahead of a summit of G-20 leaders set for Nov. 11-12 in Seoul where countries are expected to consider recommendations for strengthening the global economy, including stricter capital requirements for banks and reform of the International Monetary Fund.
The United States was pressing emerging and other trade surplus nations to reduce their trade surpluses with the West, a plan that could see their currencies rise further than they have in recent months.
U.S. Treasury Secretary Timothy Geithner’s proposals, outlined in a letter to the G-20, met with immediate resistance on the meeting’s opening day, with Japan calling the idea “unrealistic.”