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
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Steven Fletcher scores the second goal for Scotland
cricketBut they have to bounce back to beat Gibraltar in Euro 2016 qualifier
Arts and Entertainment
Chris Evans is the favourite to replace Jeremy Clarkson on Top Gear
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
How to make your own Easter egg: Willie Harcourt-Cooze shares his chocolate recipes

How to make your own Easter egg

Willie Harcourt-Cooze talks about his love affair with 'cacao' - and creates an Easter egg especially for The Independent on Sunday
Bill Granger recipes: Our chef declares barbecue season open with his twist on a tradtional Easter Sunday lamb lunch

Bill Granger's twist on Easter Sunday lunch

Next weekend, our chef plans to return to his Aussie roots by firing up the barbecue
Joe Marler: 'It's the way I think the game should be played'

Joe Marler: 'It's the way I think the game should be played'

The England prop relives the highs and lows of last Saturday's remarkable afternoon of Six Nations rugby
Cricket World Cup 2015: Has the success of the tournament spelt the end for Test matches?

Cricket World Cup 2015

Has the success of the tournament spelt the end for Test matches?
The Last Word: Justin Gatlin knows the price of everything, the value of nothing

Michael Calvin's Last Word

Justin Gatlin knows the price of everything, the value of nothing