A UNITY of purpose and sense of common interest – and some panic – in 2008 propelled the emerging vehicle of the G20 to the centre stage of world economic co-operation. In the face of a simultaneous world economic crisis the enlarged group of major economic powers, expanded from the G8 to include the Bric countries (Brazil, Russsia, India and China) and emerging powers, seemed to promise the possibility of collectively managing global trade and currency imbalances and creating supervision mechanisms that could forestall future crises. A different time and, perhaps, a lot of wishful thinking ...
As the squabbling G20 convenes in Seoul for the fifth time since then, the flurry of acrimonious verbal exchanges on issues from exchange rates to quantitative easing are reflected in the huge difficulty diplomats are having preparing final agreed statements. Two years on, and well into a highly differentiated multispeed recovery, divergent interests are the order of the day. As one commentator puts it, seven main axes divide the world, between the fast growing and the deeply sluggish, the net importers and net exporters, the currency manipulators and manipulated, the stimulators and hair-shirt governments, the democrats and autocrats, the interventionists and laisser-faire merchants, the West and the rest .... all making for a multiplicity of shifting alliances which bode ill for a coherent, united approach.
That is particularly so of currency co-ordination. China, whose huge trade surplus widened to $27.1 billion in October and whose refusal to revalue the renminbi has made it the focus of huge international pressure, has deflected incoming fire by attacking the US Fed’s injection of $600 billion of pump priming into the US economy. The effect is to weaken the dollar and enhance US competitiveness, and it is accused – as Beijing University economist Yao Yang puts it – of sending “its domestic problems to other countries through aggressive devaluation”. The move has also prompted strong criticism from many others, not least the European Union.
The prospects of either the US or China backing off or agreeing a new mechanism to manage currency fluctuation are minimal. A Dow Jones report suggests the final summit text will simply repeat an unspecific promise to “refrain from competitive devaluations” and may refer to avoiding “competitive undervaluation” without mentioning either country.
However, the meeting is likely to endorse a welcome new level of international banking supervision which will be followed by incorporation into national laws of the so-called Basle III rules. These include a gradual raising of banks’ capital holding requirements over eight years up to 7 per cent of assets, or more for riskier lenders, from as little as 2 per cent. Press reports suggest the meeting may limit the more onerous requirements to some 20 world-trading banks with global systemic importance. Supervision of banks which trade largely on a national basis, as do many of the bigger Asian banks, will probably be left in national hands.