Finding common ground

The G20 had a two-day meeting in Seoul on Thursday 11 November, and released the next day what is said to be the longest communiqué produced by a G20 meeting. The G20 is a group of international finance ministers and central bank governors whose goal since its creation in 1997 has been to promote global financial stability.

At the top of the agenda was the “damaged dynamic” of international trade, with some countries supporting massive trade surpluses, others equally high deficits. US President Barack Obama declared that “exchange rates must reflect economic realities,” referring largely to China, whose devalued currency has left the country with a trade imbalance.

This has slowed domestic demand and distorted international demand, which, in a time of slowed consumption, is a problem for recovering economies, as well as developing ones. Brazil, whose currency is overvalued by about 40 percent, has taken special measures to ensure that their exchange rate will not appreciate any more than it has.

Since the crisis of 2008, the United States has grown more intolerant of China’s trade surplus. Before Thursday’s summit, the US had made efforts to allow firms to seek tariff protection against countries whose currencies were undervalued, which would keep producers competitive.

While the US proposed that China aim for a certain (lower) level of trade surplus, German Chancellor Angela Merkel argued that this would be useless, as more than just the exchange rate affects global imbalances. Germany is an example of this. Germany also benefits from a high trade surplus, but as part of the Eurozone, it cannot manipulate its currency to rectify the problem.

While a number of representatives criticised China, another issue that affects the trade dynamic is inflation. Quantitative easing has been a policy in many developed economies in order to avoid deflation. In the US and the UK, money has been printed in order to buy government bonds, and the ECB has also taken extended measures to boost banks’ liquidity. In Japan, most notably, banks were assured that cheap loans would still be available, a policy implemented in an effort to bring down the value of the yen.

Both Barack Obama and David Cameron declared that the summit had led to “real progress,” on the issue currency manipulation. However, this optimism was not shared by all, with German officials holding that the most important issues remain largely unresolved.