G20 countries promote currency stability at Korea talks
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By Paul Li [political bureau chief]
Finance Ministers and Central Bank Governors of the Group of 20 nations finished their meetings in South Korea on Oct. 23 after issuing a statement seeking to promote currency stability and cooperate to achieve strong, sustainable and balanced growth.
The meeting occurred amidst widespread speculation that the major world economies are all contemplating strategic devaluations of their currencies. This means their exports would become cheaper in foreign funds and hence more attractive to international buyers. Such actions are generally frowned upon since they work by improving domestic situations at other countries’ expense.
Given the state of the world economy, experts fear that if many countries pursue the same strategy, not only will they end up cancelling each other’s actions, but the policies can create widespread instability in financial markets.
In their final statements, the G20 pledged to “move towards more market determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies.” Additionally, the group acknowledged complaints that monetary policy in the U.S., Japan and Europe is causing money to flow into emerging markets, causing unwanted repercussions.
Canada’s Finance Minister, Jim Flaherty, was quoted in a speech warning about the significant risk that countries will act unilaterally in their response to current economic conditions, prompting worry that while officials say one thing at the G20 meeting, they’ll return to their countries and act differently. Analysts have noted that the statement from the G20 is “heavy on ambition” and “light on immediate action.”
Participants at the meeting also sought to change the debate from exchange rates to excessive trade surpluses and deficits, which reflect vastly different experiences in economic growth throughout the world, and have been blamed as part of the backdrop of the financial crisis.
The G20 Finance Ministers and Central Bank Governors meeting is to be followed by the G20 leader’s summit in Seoul on Nov. 11-12, which will follow up on the Minister’s meeting as well as revise progress since the leader’s last met in Toronto earlier this year. Prime Minister Stephen Harper has confirmed his attendance to the summit.
Student View: What IS the G20?
The Group of 20 Nations was born in 1999 at the initiative of then-Canadian Finance Minister Paul Martin in response to what he considered a need to give more say in economic matters to countries outside the G7. It was originally set out to be a meeting only of Finance Ministers and Central Bank Governors.
In 2008, following the onset of the global financial crisis, leaders of the G20 countries held a summit to attempt to solve the crisis. Stemming from the 2008 summit, world leaders announced in 2009 that the G20 would replace the Group of 8 industrialized nations as the main economic council of wealthy nations.
The G20 is composed of 19 countries (though not necessarily the richest) and the European Union, which collectively represent 85 per cent of the world’s GNP, 80 per cent of world trade and two-thirds of world population.
Paul Li is a student of Economics and Political Science. As a member of the Kwantlen Political Science Society, he is a faithful adherent to the words of one wise man, who said “everybody has a hidden agenda. Except me.”
