(Reuters) - The Group of 20 advanced and emerging economies agreed on Saturday to move toward market-determined exchange rates and to pursue the full range of policies needed to reduce excessive external imbalances.
1) There was what the organizers termed a hardening of the rhetoric on currencies in the final communique, with a shift to “market determined” exchange rates from “market oriented” in the agreement at the previous summit in Toronto. It also called for countries to avoid “competitive devaluations.
This statement however fell short of the best that markets had hoped for in the shape of some commitment by countries to allow their currencies to appreciate. With the Bank of Japan for one intervening to weaken its currency, the outlook is not hopeful.
All in all, the communique on currencies was in line with low market expectations.
2) There was pressure on the United States on quantitative easing that has flooded the banking sector and pushed hot money into emerging markets. The communique stressed the responsibility of countries with reserve currencies, i.e. the United States, to be “vigilant against excess volatility and disorderly.” Countries such as Germany publicly criticized U.S. policy, suggesting tensions remain.
3) Although the meeting fell short of satisfying U.S. demands for firm numerical limits on current account balances, there will be “indicative” targets that should be rolled out at the meeting of G20 leaders in Seoul next month. These will be overseen by the IMF, although there is no power to sanction countries that break the limits.
4) Enhancing the role of developing countries by giving them greater voting and quota rights in the International Monetary Fund could make them share the burden of resolving global economic problems instead of indulging in unilateral action. That said, this issue will be difficult to police and countries from Brazil to South Korea are all taking measures.
That the IMF reforms were agreed at all at this forum was a big achievement, the organizers said.
5) While the series of references to an overarching macro-prudential framework governing fiscal consolidation, monetary policy, financial sector reform and exchange rate policies was an attempt at a comprehensive framework, it was light on detail. Optimists say the framework will be refined and that this is a good starting point. Pessimists say the communique is just words that are unlikely to be matched by action.
Reporting by David Chance; Editing by Tomasz Janowski
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