American bid to avert global currency war rejected at G20

A bold American plan to redress "global imbalances" in international trade and limit the surpluses that can be run by nations such as China was yesterday rejected out of hand.

Timothy Geithner, US Treasury Secretary, had hoped that a letter to finance ministers attending the G20 summit in Korea might be seen as an acceptable way to end the row over the valuation of currencies that has escalated in recent weeks.

"G20 countries with persistent surpluses should undertake structural, fiscal and exchange rate policies to boost domestic sources of growth and support global demand," Mr Geithner's letter said.

"Emerging market countries with significantly undervalued currencies and adequate precautionary reserves need to allow their exchange rates to adjust fully over time to levels consistent with economic fundamentals."

US officials suggested that trade surpluses should be capped at 4 per cent of national product, with few doubting China is the main target of the move. Its trade surplus peaked at over 11 per cent of GDP in 2007, sliding to less than 6 per cent by 2009, meaning that the US proposal is a relatively modest one.

However, China has rejected anything but the most glacial appreciation of the yuan; in the run-up to the IMF annual meeting recently the Chinese Prime Minister, Wen Jiabao, said that "if the yuan is not stable, it will bring disaster to China and the world".

Chinese officials are yet to react to Mr Geithner's overtures, but other surplus nations were dismissive. The Japanese finance minister said the idea of a cap was "not realistic", while his German counterpart warned about "planned economy thinking".

As a result, the draft communiqué from the summit, according to the Russian minister, contains no numerical targets. "The communiqué is very politically correct," he said. "There's nothing sharp in it. In the long term the focus should be on the exchange rates reflecting market conditions. Excessive state interference in currencies should be avoided."

Many observers view diplomaticattempts to persuade China to run down her surplus and refocus her economy from exports to domestic consumption as a last resort before exasperated US politicians turn to protectionism to combat what they see as Chinese intransigence over her trade surplus and the undervalued yuan.

Even after the politically chargedatmosphere of the mid-term elections passes in a few weeks, concerns about America's "jobless recovery" seem set to pile on the pressure for the White House to be seen to be taking some decisive action to help boost the economy. The stimulus packages enacted two years ago contained clauses to ensure that tax dollars were spent on US-made products; such measures could be repeated.

Alternatively, and more likely, the US Treasury could encourage the Federal Reserve to engage in an even more radical programme of "quantitative easing", injecting more money into the economy. This would both stimulate activity and drive the exchange rate of the dollar down against the yuan. Beijing would then have to step up heralready energetic policy of buying those dollars and building an ever higher pile of dollar assets that, in the longer term, may be prone to devaluation. Such a process might well result in severefinancial instability and that is one reason why such a currency war is feared by almost everyone.

"We must find a solution to this," the Indian Finance Minister, Pranab Mukherjee, added.

Start your day with The Independent, sign up for daily news emails
Voices
voices
News
general electionThis quiz matches undecided voters with the best party for them
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
News
Prince William and his wife Catherine, Duchess of Cambridge show their newly-born daughter, their second child, to the media outside the Lindo Wing at St Mary's Hospital in central London, on 2 May 2015.
news
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before