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G-20 Addresses Currency Tensions

By Don Amos / October 28, 2010

G-30 –  China and the United States have reached the basis for an agreement at next month’s Group of 20 summit on setting targets to rein in global trade imbalances, a report said Wednesday.

The Financial Times quoted Li Daokui, an adviser to China’s central bank, saying G20 finance chiefs had made “good progress” towards a deal at their meeting in South Korea at the weekend.

“I was very encouraged by the G20 meeting,” Li told the newspaper in an interview. “It is now possible for the two governments (the US and China) and other governments to have a good understanding.”

In a statement the G20 finance ministers agreed to “refrain from competitive devaluation of currencies” and aim for “more market-determined exchange rate systems”.

G20 ministers also vowed to “pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels”.

Targeting China’s hefty current account surplus would be an indirect way for Washington to cajole Beijing into relaxing its grip on the yuan and allow the currency to appreciate — a move demanded by its key trading partners.

“China has absolutely nothing to worry about,” said Jim Fink in InvestingDaily.com. Although it was, along with the U.S., the clear target of the G-20’s warnings, the group has no enforcement mechanism to punish coountries that keep their currencies artifically low.

China seems determined to follow its own timetable and there is nothing the G-20 can do to change it.

No statistical objective was given in the final G20 statement.

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Don Amos

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