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The G-20's failure to produce concrete ways to avert a currency war
represents weakening U.S. leadership in the global economy after the
crisis spawned by Wall Street two years ago.
Global leaders have agreed a ceasefire in the so-called 'currency war'
that has seen the world's biggest economies accused of artificially
devaluing their money to drive export growth.
The deal, agreed at the G20 Seoul Summit in South Korea, will
develop 'indicative guidelines' to prevent global trade imbalances -
but the deal falls well short of tougher restrictions proposed by the
U.S.
President Barack Obama had called for a 4 per cent limit on national
trade deficits and surpluses, which was blocked by China and
Germany, the world's two biggest exporters.
David Cameron had raised concerns of the µcompetitive devaluation¶
of currencies which some have warned could lead to a 1930s-style
financial crisis.
The Prime Minister said that one of the key factors behind the 2008
financial crisis - the build-up of massive trade imbalances between the
high-consuming West and the productive economies of east Asia -
had not gone away and might even, according to the IMF, be getting
worse. China and the U.S. have both accused each other of driving
down the value of their currencies through measures such as
quantitative easing and suggestions that Beijing is keeping the yuan¶s
value low against the dollar to aid exports at the expense of American
jobs.
Leaders of the world¶s biggest economies agreed to strengthen the
role of the International Monetary Fund (IMF), which will take on
trade imbalances affecting world growth.
Mr Cameron hailed the agreement as µgood for British jobs, good for
British businesses and good for British exporters.¶

The fear all the leaders have is a return to what happened in the 1930s:
protectionsim, trade barriers, currency wars, countries pursuing
beggar my neighbour policies - trying to do well for themselves but
not caring about the rest of the world. That is the danger.

It is understood that Britain, the US and Canada overcame opposition

from some other G20 members to secure agreement that finance
ministers should draw up the guidelines in time for the first
assessment to take place at the next G20 summit in France next June.
Seoul agreement is compared to the Bretton Woods meeting which
created a global economic framework for the post-Second World War
world. The communiqué produced at the end of the Seoul summit
included 'an explicit recognition that people need to move towards
market-determined exchange rate system and that exchange rate
flexibility should reflect underlying economic fundamentals.'
2011 will provide a 'critical window of opportunity' to complete the
Doha Round of trade liberalisation negotiations.
Support for fiscal consolidation is in the first line of the first bullet
point of the Seoul action plan,' said the Chancellor.
The reforms will give emerging economies such as China a bigger say
in the IMF, moving it up to the position of third-largest shareholder,
from sixth place.
Brazil, Russia and India will also be among the top 10 IMF
shareholders.
The total size of the quotas - the contributions of the 187 member
states to the fund's capital - will be doubled, to $756 billion.
The IMF's executive board described the changes as 'historic'.
The biggest-ever shift of influence in favour of emerging market and
developing countries.
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Leaders of the world¶s largest economies have agreed a $1.1 trillion
package of measures to restore growth and jobs and rebuild
confidence and trust in the financial system. This is the day that the
world came together, to fight back against the global recession. Not
with words but a plan for global recovery and for reform and with a
clear timetable.
Today we have reached a new consensus that we take global action
together to deal with problems we face, that we will do what is
necessary to restore growth in jobs that we will take essential action
to rebuild confidence and trust in our financial system.
Fiscal stimulus measures that countries announced amounted to some
five trillion dollars by the end of next year, and at the London summit
countries had agreed to inject fresh money into the economy that
would support unprecedented fiscal expansion. This $1.1 trillion
worth of additional measures included:
Oc an additional $500bn for the IMF $250bn in International Monetary
Fund Special Drawing Rights available to all IMF members; and
Oc a trade finance package worth $250bn over two years to support
global trade flows
Oc At least $100bn of additional lending by the Multilateral
Development Banks
Six pledges that that the 21 nations and the European Commission
had agreed at the Summit were to:
restore confidence, growth, and jobs; repair the financial system to
restore lending; strengthen financial regulation to rebuild trust; fund
and reform our international financial institutions to overcome this
crisis and prevent future ones; promote global trade and investment
and reject protectionism, to underpin prosperity; and build an
inclusive, green, and sustainable recovery.
Principles to reform the global banking system included: bringing the
shadow banking system, including hedge funds, within the global
regulatory net; new international accounting standards; regulation of
credit rating agencies; and an end to tax havens that do not transfer
information on request.

The reform of the financial system would include a common global

approach to how we deal with impaired or toxic assets.
Leaders would meet later in the year to review the implementation of
today¶s measures and take further action if needed.

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It achieved general agreement amongst the G-20 on how to cooperate

in key areas so as to strengthen economic growth, deal with
the financial crisis, and lay the foundation for reform to avoid similar
crises in the future. The Summit resulted from an initiative by the
French and European Union President. Under the following five
headings, immediate actions and medium term actions are listed in the
G20 statement, but most raise problems rather than proposing specific
solutions. Finance ministers are tasked with coming up with
additional actions in a number of areas, including reviewing and
aligning global accounting standards and reviewing the mandates,
governance, and resource requirements of the IFIs. Poverty reduction
and climate change merit only a passing reference.

Most of the focus was on accounting standards, with an immediate

action to address weaknesses in accounting and disclosure standards
for off-balance sheet vehicles. The inadequacy of the current
governance structure - run by the industry body the International
Accounting Standards Board (IASB) - is only hinted at. The
governance of the international accounting standard setting body
should be further enhanced.

Lack of transparency and a failure to exchange tax information should

be vigorously addressed.

Supervisory colleges for all major cross-border financial institutions

were proposed.

The Bretton Woods institutions must be comprehensively reformed so

that they can more adequately reflect changing economic weights in
the world economy and the need for emerging and developing
economies to have greater voice and representation. These platitudes
give little assurance that significant reform will be agreed as even the
most opposed to significant IMF governance reform for the last two
years.

The IMF was asked, with an expanded Financial Stability Forum

(FSF) to take a leading role in drawing lessons from the current crisis.

Submitted by:
Saurabh Saha (0928MPS)