Economy

G20 echoes Hu's call for stable forex policies

By Ding Qingfen, Wang Bo and Wu Jiao (China Daily)
Updated: 2010-11-13 11:23

SEOUL - President Hu Jintao urged the world's major reserve currency nations to maintain the stability of their exchange rates, as the world's leaders vowed at the G20 summit to avoid the competitive devaluation of their currencies.

Hu made the remarks during his keynote speech at the G20 gathering on Friday, a few days after the United States announced it would buy $600 billion in long-term government bonds to revive its economy.

Many developing and developed nations are concerned the move will push up the price of assets and the value of the currency.

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"The major reserve currency economies should adopt responsible policies, thus easing and gradually removing the fundamental problems behind foreign exchange liquidity risks," Hu told the summit.

After two days of heated discussions among leaders, the G20 Seoul Summit Leaders' Declaration was released on Friday.

Echoing what Hu has called for, the declaration pointed out "advanced economies, including those with reserve currencies, will be vigilant against excess volatility and disorderly movements in exchange rates". These actions will "help mitigate the risk of excessive volatility in capital flows facing some emerging countries".

Shi Yinhong, an expert on international politics with Beijing-based Renmin University of China, said the G20 Seoul Summit has come out with a declaration that most members would like to see.

The "mistake" Washington made in announcing its massive bond purchase right before the summit is the reason behind the declaration, he said.

Jim O'Neill, chairman of Goldman Sachs Asset Management, told China Daily on Friday: "I think the G20 summit was helpful, but it might take time for the results to be seen."

"China is moving toward a better balance of economic growth, including lower current account surpluses ... as part of this, the yuan will appreciate more," O'Neill said.

Besides financial stability, Hu's speech also touched upon trade protectionism, the Doha Round of trade talks and financial regulatory reform.

Shi said the speech was a "proper and polite fight-back against the US" which has been blaming China for various economic issues including currency valuation.

The yuan has risen for four consecutive days, and the central bank set the yuan's daily reference rate at 6.6239 against the greenback on Friday, the strongest level in 17 years. The yuan has climbed 3 percent since mid June when China scrapped its dollar peg.

In his meeting with his US counterpart Barack Obama, Hu said China is determined to press ahead with the reform of the foreign exchange regime, but the pace should be "gradual and steady".

But Obama said at the media briefing on Friday that China's yuan was undervalued and the US expects China will make progress on the issue and is "confident it can happen", although this cannot happen overnight.

Gregory T. Chin, senior fellow of the Center for International Governance Innovation, a Canada-based think tank, said: "It's very important for China to demonstrate what it has been doing, and obviously, it's not useful to blame anyone.

"What is useful is to have all the G20 members understand how we are interconnected and interdependent."

On the US' monetary policy, Philip I. Levy, resident scholar with the American Enterprise Institute, said: "To the extent the quantitative easing succeeds in reflating the US economy, it will diminish pressures for aggressive currency action. However, it's likely to exacerbate concerns among those countries uncomfortable with the way their currencies are appreciating, particularly the emerging markets."

In the speech, Hu urged the G20 members to "firmly push forward free trade and resist trade protectionism, reducing trade and investment barriers and coping with conflicts through dialogue".

Trade imbalance

Ma Zhaoxu, a spokesman for China's Foreign Ministry, said that the world's economic imbalance is a focal point.

During preparations for the summit, "some nations proposed to set a quantitative standard on the current account balance, which was opposed by many G20 members including China", he said in a statement.

The Seoul declaration highlighted that "member nations will pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable level".

The G20 members agreed to develop a system of indicators that will assess whether the path of global current account imbalances threatens to disrupt the world economy next year.

Dominique Strauss-Kahn, managing director of the International Monetary Fund, said defining and fixing global imbalances is a process that requires more than one meeting.

"A 4-percent deficit doesn't mean the same thing for the emerging markets and developed economies," he said, referring to the US proposal of capping current account imbalance at 4 percent of GDP.

Li Xiaokun from Beijing, Tan Yingzi from Washington and Zhang Chunyan from London contributed to this story.