China is leading resistance to making bulging foreign-exchange reserves a measure of economic imbalances as Group of 20 finance officials struggled for consensus on realigning the skewed world economy.
Sparring over early-warning indicators reflected the split among fast-growing emerging countries and debt-laden advanced economies over how to prevent a repeat of the harshest recession since World War II.
“G-20 discussions to date have revealed a limited willingness of countries genuinely to coordinate over policies outside a global crisis,” Bank of England Governor Mervyn King said as the two-day Paris meeting got under way. “The major surplus and deficit countries are currently pursuing economic strategies that are in conflict.”
With the world recovery entering a second year, the unity forged during the crisis is dissipating as up-and-coming powers challenge the deficit-scarred West’s formula for managing the international economy.
China will remain the world’s fastest growing major economy in 2011, with a 9.6 per cent expansion, the International Monetary Fund predicts. The Washington-based lender sees a 3 per cent growth in the US and a 1.5 per cent growth in the 17-nation euro area.
“Most people see a world in which the emerging world’s growing 5, 6 per cent; we’re growing between 3 and 4 per cent, Europe and Japan somewhere between 1 and 2 per cent,” US Treasury Secretary Timothy F Geithner said in Paris. “That seems a reasonable forecast.”
In a concession to US-led pressure to push up its currency, China raised bank-reserve requirements for the eighth time in a year and indicated that a four-month old cycle of interest-rate rises will go on.
Higher reserve standards are not “the only method that we’ll use to battle inflation, it’s about using all means including rates and currency,” People’s Bank of China Governor Zhou Xiaochuan said in an interview in Paris. “One method doesn’t exclude the other.”
While the Chinese moves may have defused some tension at the meeting, western officials continued to push for a longer-term yuan boost and a realignment of the global economy to stoke growth. China’s “moves with respect to their currency have been relatively minor,” Canadian Finance Minister Jim Flaherty said. “It’s important as part of rebalancing they are more flexible with respect to their currency. China promised to do more.”
Finance ministers and central bankers from the G-20, representing about 80 per cent of world output, came with scaled-back ambitions. French President Nicolas Sarkozy welcomed them to Paris by dropping last year’s talk of a relaunch of the global monetary system to end the US dollar’s supremacy. France’s main aim for the meeting is to move toward an accord on the use of economic indicators to monitor the trade and investment distortions that pitched the world into crisis. “I hope that you discussions will avoid getting bogged down in endless discussions on these indicators,” Sarkozy told finance officials at his Elysee Palace.
European Union officials want the scorecard to include the current-account balance, public deficit and debt, savings ratio, net foreign assets, reserve adequacy, real effective exchange rate and private debt, according to an EU position paper.
