Leaders of the Group of 20 nations agreed to try to resolve their differences over currencies and trade imbalances over the course of next year, but failed to reconcile their positions on the substantive issues, the FT reports. Facing the prospect of making no progress on “currency wars”, the G20 agreed a vague set of “indicative guidelines” to enhance the existing international process aimed at generating more balanced global growth. “These indicative guidelines composed of a range of indicators would serve as a mechanism to facilitate timely identification of large imbalances that require preventive and corrective actions to be taken,” the G20 communique stated. G20 leaders also discussed Irish debt, Bloomberg reported, and finance ministers from Germany, France and the UK will probably issue a joint statement later today according to a spokesman for Angela Merkel, the German chancellor. Read more
The US and South Korea have failed to reach a promised agreement to finalise a high-profile bilateral trade pact, dashing hopes that the G20 summit in Seoul would deliver anything but a rhetorical commitment to liberalising trade, the FT reports. Following days of intense talks between US and Korean trade officials, President Barack Obama and President Lee Myung-Bak on Thursday admitted they would not reach the target of resolving outstanding problems by the target date of Friday’s G20 meeting. Despite likely agreement by G20 leaders on a fresh deadline of 2011 for completion of the stalled Doha round of international trade talks, the bilateral US-Korean deadlock was an ominous sign, says the FT in a separate report, of a slide towards protectionism. Read more
G20 leaders will on Friday agree vague “indicative guidelines” for measuring global imbalances, leaving the details to be hammered out next year, reports Reuters citing G20 officials. The compromise solution effectively calls a pause after heated debate over currencies. G20 negotiators met until early Friday at the Seoul summit to try to thrash out an agreement that their leaders could all endorse, despite deep divisions that were apparent in the lead-up to the summit concluding on Friday. G20 deputy ministers had agreed on the wording for a final statement by 3am GMT, sources told Reuters, but it is not expected to venture much beyond what was already agreed by G20 finance ministers in October. The FT adds that the G20 will also agree on setting a 2011 deadline for completion of stalled Doha trade talks. Read more
The latest diplomatic spin coming out of the G20 conference in Seoul:
Obama is pushing for specific commitments from other G20 leaders at this summit to tackle global imbalances — shorthand for the massive U.S. trade deficit and equally large trade surpluses built up by countries such as China and Germany. … Read more
President Obama has met Hu Jintao, the president of China, ahead of G20 talks beginning in Seoul, Bloomberg reports. “As two of the world’s leading economies we have a special obligation to deal with ensuring strong balance and sustained growth,” president Obama said, whilst president Hu said he had confidence the G20 summit would result in a “positive outcome.” The US president also sounded a note of optimism, adding “The U.S.-China relationship, I think, has become stronger over the last several years, as we’ve been discussing a whole range of not only bilateral issues but world issues,” Reuters reports. The news agency also reports that Joseph Stiglitz, the Nobel Prize-winning economist, said on Thursday that emerging economies will need capital controls to manage flows of “hot money” following quantitative easing measures taken by the US. Read more
Governments have played down expectations of a breakthrough in resolving global economic imbalances at this week’s G20 summit in Seoul, after clear divisions emerged over currencies and current account deficits, reports the FT. On Wednesday US president Barack Obama reiterated the need for countries with current account surpluses – a category including China, Japan and Germany – to increase domestic demand rather than relying on exports, noting the October agreement by G20 finance ministers to guard against the re-emergence of unsustainable external imbalances. But experts said the summit would not come up with a clear plan on achieving this. TheSource, meanwhile, blames the Fed for what is certain to be an “uneventful G20″ summit, while Bloomberg reports that South Korea’s G20 committee spokesman has said that the G20 nations have failed to resolve differences over currency policies hours before leaders meet. Read more
Courtesy of Ashmore, it’s long not wide:
After all the endless column lengths written about Japan’s lessons for the US (for example, here and here, and here and here), Capital Economics feels China could do with some Japanese lessons, as it suggests in a client note this week:
Today’s tensions between China and the US have many echoes of those between Japan and the US in the 1980s including, most clearly, over the exchange rate. The lesson for China is not, as some have suggested, that China should withstand US pressure on its currency so as to avoid a slide into a Japan-style lost decade. It is that China should adjust sooner rather than later. Waiting would cause the needed shift and the associated risks to be larger. Read more
China on Wednesday posted a larger-than-forecast $27.1bn October trade surplus, a day before G20 leaders including US and Chinese presidents Barack Obama and Hu Jintao meet in Seoul to discuss global imbalances in spending and capital flows, reports Bloomberg. China’s report followed Tuesday’s news that Japan recorded a 24% annual increase in its September current account surplus. The FT noted that the unexpectedly strong rise to Y1,960bn ($24.25bn) in September could increase scrutiny at the G20 summit of Japan’s role in international imbalances. Tokyo has voiced opposition to a US call for the G20 to limit current account surpluses and deficits to 4% of GDP, with Yoshihiko Noda, finance minister, stressing on Tuesday that each country had “its own circumstances”. Read more
Leaders at the G20 summit in South Korea this week will have to address persistent imbalances in global economic growth, Barack Obama said on Tuesday, the FT reports. The US president also indirectly struck out at China, noting that “some countries” were running up “very big surpluses and intervening significantly in the currency markets to maintain their advantage when it comes to their currency.” The comments add to a war of words between Beijing and Washington over currency and trade issues. Obama spoke during a stopover in Indonesia, on a 10-day swing through Asia. After the G20 summit in Seoul, he will attend an Apec meeting in Japan. Meanwhile, reports Bloomberg, China on Wednesday posted a larger-than-forecast $27.1bn October trade surplus. Read more
China’s renminbi continued rising on Wednesday after posting its largest one-day rise since it was depegged from the dollar in 2005, the FT reports. The currency rose 0.5% to 6.6424 per dollar on Tuesday and, reports Bloomberg, a further 0.2% to 6.6450 on Wednesday after the People’s Bank of China raised its daily reference rate, about which the currency is allowed to fluctuate. The move fuelled expectations that China will let the renminbi rise further to reduce tensions ahead of this week’s G20 summit in Seoul. It also coincided with an announcement from China’s State Administration of Foreign Exchange, requiring banks to hold more foreign exchange and increase auditing of overseas fundraising to curb hot money inflows. Read more
Most big Asian banks will be exempted from a global regulatory regime under the latest proposal for the industry from the world’s leading economies, which aims to prevent another financial crisis, the FT reports. People briefed on the agenda for the G20 summit, which begins in Seoul on Thursday, said officials had concluded that global regulators should focus on big banks with global businesses, stripping out domestically focused institutions without the reach of the industry’s cross-border companies. According to this criteria, many big lenders in countries such as Japan and China, with a limited presence abroad, will be exempted, leaving domestic regulators to deal with them as they see fit. But in a move that will disappoint some, the G20 is set to defer a decision on whether there should be a globally set capital surcharge for systemically important banks. Read more
Leaders gathering for a Group of 20 nations summit in South Korea this week will have to address persistent imbalances in global economic growth, Barack Obama said on Tuesday, the FT reports. The US president also struck out at China, saying: “You are seeing some countries run up very big surpluses and intervening significantly in the currency markets to maintain their advantage when it comes to their currency.” The comments added to a war of words between Beijing and Washington over how to deal with the fragile economic recovery. Mr Obama was speaking in Indonesia, a 20-hour stopover on his 10-day mission to Asia to boost US diplomatic leadership in the region and to provide a counterpoint to China. He heads next to Japan and South Korea for the G20. Read more
FT Alphaville presents a guest post by Ousmène Mandeng, head of public sector investment advisory at Ashmore Investment Management Limited. The views expressed are strictly his own.
The G20 Seoul summit on 11-12 November risks being a tad too self-congratulatory on past achievements—many which were not really important and others that may be important once implemented but where implementation risk remains substantial—and show little in substance on next steps. For the G20 to remain relevant it will have to demonstrate that it can lead on issues that matter to the markets. “Currency wars” represent a perfect opportunity to show that the G20 is indeed a meaningful successor to the G7. It also represents the most important development for international investors. Read more
FT Alphaville’s new, dynamic feature, Macro Live, will be given another airing this Wednesday — ahead of the G20 meeting.
So join us at 3.30pm London time (10:30am in New York) on Wednesday for an hour or so of live, interactive economics chat centred around some of the issues that will be discussed in Seoul. Read more
China has dismissed a US proposal to impose current account targets and criticised US monetary policy, undermining hopes that the governments of the world’s two largest economies will find common ground at the G20 summit in Seoul next week the FT reports. Cui Tiankai, a deputy foreign minister and one of China’s lead negotiators at the G20, on Friday said the US plan for limiting current account surpluses and deficits to 4 per cent of gross domestic product harked back “to the days of planned economies”. Meanwhile Bloomberg reports that French president Nicolas Sarkozy and Chinese president Hu Jintao have signed contracts worth $22.7 bn, which will benefit Airbus, Areva, Total and Alcatel-Lucent. The news agency also reports that China plans to commence trading in yuan- denominated credit-default swaps today. Read more
Independent Strategy have never been ones to mince words.
On Friday they’ve tackled the thorny issue of currency wars and global imbalances. It’s a topical debate given that US Treasury secretary Tim Geithner suggested earlier this week that G20 members (ahem, China) restrict their current account surpluses to no more than 4 per cent of GDP, to help alleviate certain unevenness. Read more
Finance ministers at the G20 summit in Seoul have agreed on a framework designed to tackle large current account imbalances, but will wait until next month to agree specific guidelines, the FT reports. Quick translation — the dollar has been given a green light to weaken even further. The yen reached another 15-year high against the dollar in Asian and European trading on Monday, with the euro also testing recent strengths, Reuters says; while Bloomberg has a copy of the official G20 communique and reports that the summit’s main takeaway may have been to prod China once again on the renminbi’s weakness against the dollar. Read more
The weekend meeting of G20 finance ministers in South Korea made rapid progress on a matter that had threatened to overshadow November’s G20 summit, notes the FT: the largely symbolic but politically important issue of control over the IMF. On other fronts, US proposals on the critical issues such as exchange rates and current account deficits opened up possibilities without achieving concrete decisions. If expectations are low enough, “they can be surpassed without too much trouble”, says Lex. Since national policy changes were out of the question for the G20, “agreement on some fine words was an accomplishment - far preferable to an open fight”. It showed, however, that the transition from the waning to the emerging global order “is a tricky business”. Read more
G20 finance ministers reached a surprise agreement in South Korea at the weekend on landmark reform of the IMF to give more weight to developing countries and double the IMF’s $340bn quotas, reports the FT. But as the FT notes in a separate report, the G20 failed to agree on proposed trade imbalance targets. Under the IMF deal, European countries will give up two of their eight seats on the Fund’s 24-member board and over 6% of IMF voting power will be transferred to underrepresented countries, making China the third-biggest member of the 187-strong institution. On trade, while the G20 agreed on a framework to contain current account surpluses and deficits, a proposal to set specific targets ran into opposition. Read more
South Korea is showing its uncanny knack for timing with its planned new steps to curb capital inflows, just ahead of its star role as host of the upcoming G20 meetings — which are likely to be dominated by discussions of “currency wars“.
G20 finance ministers, meeting from this Friday in the South Korean city of Gyeongju, are trying to lay the groundwork for the November summit of world leaders in Seoul. Their key concern is averting a round of competitive devaluations by countries hell-bent on shoring up their own tentative economic recoveries. Read more
US officials headed to this weekend’s G20 summit in South Korea are keen on a proposal to set current account targets to control the rise of large surpluses in emerging markets — and large deficits at home, the WSJ reports. But it’s exporters in the developed world that have been most cool on the idea, with Japan calling numerical targets ‘unrealistic’ and Germany also on the attack. Reuters carries details of Treasury Secretary Tim Geithner’s letter to G20 members calling for current accounts to be overseen by the IMF. There’s another problem, notes Bloomberg — even if a deal is reached, G20 members have a terrible track record of implementing reforms they’ve agreed upon. Read more
Trading was subdued across financial centres as investors appeared reluctant to take fresh positions ahead of this weekend’s conclusion of the G20 finance ministers meeting in Seoul at which forex policy will be centre stage, the FT reports. The FTSE All-World equity index was slipping 0.3 per cent as the dollar firmed. The buck’s stability was knocking gold and crimping gains in industrial commodities. US stock futures were down 0.1 per cent. But investors in Asian exchanges seemed more prepared to put a gloss on US earnings reports than their American peers. The FTSE Asia-Pacific index was up 0.4 per cent as traders were cheered by figures overnight from the likes of American Express and Caterpillar. In Europe, however, bourses opened lower, mainly reflecting Wall Street’s pull back from early session highs overnight. The FTSE Eurofirst 300 was down 0.3 per cent and London’s FTSE 100 was off 0.4 per cent as resource stocks saw selling. Read more
Timothy Geithner has said that major world currencies are “roughly in alignment,” and called for leaders to agree on a set of “norms” on exchange rate policy at this weekend’s G20 meeting in Seoul. In an interview with the WSJ, the US Treasury Secretary also said he would seek numerical targets for “sustainable” trade surpluses and deficits. “Countries are trying to figure out what is in their self interest. It’s not a test you solve in two weeks. It will take three to five years. We want to move the G-20 towards an institution with more promise,” Mr Geithner said. Read more
Countries including China should move to market-based exchange rates, Australian Treasurer Wayne Swan said on Wednesday ahead of a weekend meeting of G20 finance ministers in South Korea, reports the WSJ. The G20 meeting is unlikely to produce definitive outcomes” on the currency battles rattling markets or broader structural issues threatening sustainable global growth, though they will “prepare the ground” for the G20 summit next month in Seoul, Swan said in an interview. As western nations urge Beijing to let its tightly controlled currency appreciate, Swan said the renminbi “is not solely responsible for imbalances in the global economy.” Read more
Worthwhile reading on Tuesday — 22 pages of a Basel Committee on Banking Supervision report to the G20, on its financial reform activity since a 2009 Group summit told it to get cracking.
There are good summaries here of what Basel’s new global capital and liquidity rules will do, the geological-epoch-long transition timetable, and what the Committee is looking at next. Read more
We’ve already commented on the rampant descent of the dollar on Thursday.
But here’s a scarily convincing argument from Marc Ostwald at Monument Securities about what all these QE-related currency war shenanigans could really be indicating. Read more
Japan has called on South Korea and China to “act responsibly” on exchange rates in an unusually strong statement ahead of the G20 summit of leading nations in Seoul, expected to be overshadowed by rising tensions over currencies, the FT reports. The statement by Naoto Kan, Japan’s prime minister, adds to pressure on Seoul as the host of the meeting in November to broker a discussion on currencies despite some countries, including China, pushing to keep the issue low on the agenda. Mr Kan said efforts by individual nations to depress their currencies had no place in G20 co-operation. “We’d like South Korea and China to act responsibly within common rules,” he said. Washington and Beijing are locked in an increasingly acrimonious dispute, with the US calling for faster renminbi appreciation, while China blames loose US monetary policy for propelling destabilising fund flows into emerging markets. Read more
Japan has suggested that South Korea may come under more international scrutiny for intervening in markets to depress the won, in a veiled warning amid a bitter global debate about currency policy, the FT reports. Yoshihiko Noda, the Japanese finance minister, raised questions about South Korean interventions ahead of next month’s G20 meeting, which Seoul will host. “As chair of the G20, South Korea’s role could be seriously questioned,” Mr Noda told the Japanese parliament, according to Reuters. Japan and South Korea, which have both intervened in currency markets, have been drawn into a bigger battle between the US and China over currency and monetary policies that escalated at recent International Monetary Fund meetings. Read more