G-20 vows to avoid currency war+

GYEONGJU, South Korea, Oct. 23 Kyodo -
Financial chiefs from the Group of 20 advanced and major developing economies
pledged Saturday to fight rising fears of a possible global currency
devaluation race and pursue more market-oriented exchange rate systems amid
concerns the world economic recovery is getting ''fragile.''
It is necessary to step up cooperation in rebalancing global economic growth,
with both countries with current account surpluses and those with deficits
required to keep the imbalances at ''sustainable levels,'' the G-20 finance
ministers and central bank governors also said in a communique after meeting in
the South Korean city of Gyeongju.
The two-day talks came as a preparatory gathering for the G-20 heads of
government summit next month in Seoul.
The communique released after the meeting warned that a currency war, in which
countries race to devalue their currencies or control capital inflows as a way
to boost exports and employment, could accelerate the risk of excessive
volatility in capital flows into some emerging countries.
The G-20 will ''move towards more market determined exchange rate systems that
reflect underlying economic fundamentals and refrain from competitive
devaluation of currencies,'' it said.
''The global economic recovery continues to advance, albeit in a fragile and
uneven way,'' the joint statement said.
Compared with economic conditions in June when they last met, destabilizing
capital inflows and rising inflationary pressures in emerging economies has
added to their concerns, government officials said.
After the meeting, finance ministers emphasized they successfully defused
tensions.
The commitment by the G-20 will help ''stabilize'' the foreign exchange market,
said Japanese Finance Minister Yoshihiko Noda, who added, ''The market should
think that we reached an agreement.''
South Korean Strategy and Finance Minister Yoon Jeung Hyun, who chaired the
meeting, said he believes the competitive currency devaluation ''will end.''
The ministers and central bankers are considering rebalancing global economic
growth through such measures as maintaining current account surpluses and
deficits at certain levels.
The joint statement said they will seek to agree on ''guidelines'' to assess
any large imbalance but did not contain the specific numerical goal for the
rebalancing effort, jointly proposed by the United States and South Korea.
On Friday, the two countries said the G-20 members should cap their surpluses
or deficits at 4 percent of gross domestic product by 2015.
Still, U.S. Treasury Secretary Timothy Geithner hailed the G-20 move. ''The
most important thing we achieved is agreement on a framework for curbing excess
trade imbalances in the future,'' he said.
A conference source earlier said the proposal could face opposition from some
countries such as China, which runs huge trade surpluses while preventing its
currency from sharply appreciating.
The proposal was widely seen as intended to force China, now at the center of
currency disputes, to come into a framework of multilateral cooperation.
China's ratio of current account surplus to GDP stood at 6.0 percent in 2009
and is expected to expand from 4.7 percent this year to 7.8 percent in 2015,
according to data released by the Japanese Finance Ministry.
China apparently urged the United States to act responsibly as a key currency
issuer.
During the meeting, Chinese Finance Minister Xie Xuren said major
currency-issuing countries must keep ''comparative stabilization of exchange
rates,'' adding there should be ''efforts to reduce negative impacts of
exchange rate policies and to keep the global financial communities stable,''
China's Xinhua News Agency reported.
Developed economies, especially the United States, have been turning up the
heat on China to allow the yuan to appreciate at a faster pace and stop
offering unfair support to its exporters by keeping the currency cheap.
China, Brazil and other emerging nations have said it is due largely to
ultra-low interest rates and unorthodox monetary easing taken by the United
States, Japan and Europe that emerging markets have been flooded with
destabilizing capital inflows seeking higher-yielding assets, which put upward
pressures on their currencies.
The G-20 also reached an agreement on reforms of the International Monetary
Fund to better reflect emerging economies' voices and confirmed the need to
strengthen financial oversight and regulations.
The G-20 involves Argentina, Australia, Brazil, Britain, Canada, China, France,
Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South
Africa, South Korea, Turkey, the United States and the European Union.
==Kyodo