Posted October. 25, 2010 11:27,
G-20 finance ministers have prevented further escalation of tension between the U.S. and China over foreign exchange rates.
Washington found a solution to the dispute not through the appreciation of the Chinese currency yuan but through a link to the size of current account surpluses.
The meeting of G-20 finance ministers and central governors in the ancient Korean city of Gyeongju, North Gyeongsang Province, ended Saturday with the adoption of a joint statement.
The key elements of the statement include the promotion of market determined exchange rate systems and the transfer of International Monetary Fund quota shares by more than 6 percent.
On exchange rate conflict, finance ministers agreed to move more toward market determined exchange rate systems and refrain from competitive devaluation of currencies.
Under this agreement, China will find it difficult to resist pressure to appreciate its currency and Japan to publicly devalue the yen.
Korean Finance Minister Yoon Jeung-hyun told reporters shortly after the meeting, The exchange rate dispute will soon be over.
The finance ministers also agreed to shift IMF quota shares of more than 6 percent to emerging developing countries and underrepresented countries at the funds annual meeting in 2012. They will also raise the number of chairs from emerging developing countries by reducing two seats for Europe out of the 24 seats on the executive board.
The shift in IMF quota shares is 1 percentage point higher than the 5 percent agreed at the third G-20 summit held in Pittsburgh in September last year.
The latest G-20 meeting produced more results than expected thanks to behind-the-scenes negotiations between the U.S. and China.
A member of the Presidential Committee for the G-20 Summit in Seoul said, Right before the meeting, pessimistic views dominated with many saying few agreements would be made, adding, But the agreement on exchange rates was reached after the U.S. proposed linking the adjustment of current account surpluses to the solution of the currency issue.
Washington strongly pressured finance ministers to reach agreement on the currency dispute by proposing to maintain current account imbalances at certain levels as first suggested by Seoul.
The U.S. demanded that current account surpluses or deficits be maintained within 4 percent of GDP. Due to objections from countries with big surpluses such as Germany and China, however, the joint statement failed to set numerical targets, only saying current account imbalances will be corrected by indicative guidelines.
Though China resisted the yuan`s appreciation, the worlds second largest economy did not oppose this idea.
A government official in Seoul said, At the Canada G-20 summit, China opposed inserting the phrase We welcome signs of improvement in Chinas exchange rate system, though the phrase was meant to praise Chinas efforts, adding, Had finance ministers tried to find solutions to the currency issue only through the yuans appreciation, they couldnt have produced the joint statement.
The shift in IMF quota shares will raise China`s ranking from sixth to third.