“Persistently large imbalances, assessed against indicative
guidelines to be agreed by our Finance Ministers and Central Bank
Governors, warrant an assessment of their nature and the root causes of
impediments to adjustment as part of the MAP (Mutual Assessment
Process), recognizing the need to take into account national or regional
circumstances, including large commodity producers,” the communique
continued.

“These indicative guidelines composed of a range of indicators
would serve as a mechanism to facilitate timely identification of large
imbalances that require preventive and corrective actions to be taken,”
it went on. “To support our efforts toward meeting these commitments, we
call on our Framework Working Group, with technical support from the
IMF and other international organizations, to develop these indicative
guidelines, with progress to be discussed by our Finance Ministers and
Central Bank Governors in the first half of 2011.”

One task of the G20 over the next two days then will be to reach a
more precise agreement on which indicators to use to assess imbalances
and decide what role the IMF will play in developing and monitoring
them.

Actually enforcing any kind of concrete measures to reduce trade
imbalances is quite another matter of course. It’s an often contentious
argument that long predates the G20 and will probably continue long
after the G20.

The Seoul summit took place against the backdrop of talk of
“competitive devaluations” and “currency war” triggered by QE2. The
communique sought to address it with fairly bland language on exchange
rates: “We will move toward more market-determined exchange rate systems
and enhance exchange rate flexibility to reflect underlying economic
fundamentals and refrain from competitive devaluation of currencies.”

“Advanced economies, including those with reserve currencies, will
be vigilant against excess volatility and disorderly movements in
exchange rates. Together these actions will help mitigate the risk of
excessive volatility in capital flows facing some emerging market
economies,” the communique added.

This differed little from a communique issued following an Oct. 23
meeting of G20 finance ministers and central bankers in Gyeongju, South
Korea. They declared they would “move towards more market determined
exchange rate systems that reflect underlying economic fundamentals and
refrain from competitive devaluation of currencies. Advanced economies,
including those with reserve currencies, will be vigilant against excess
volatility and disorderly movements in exchange rates. These actions
will help mitigate the risk of excessive volatility in capital flows
facing some emerging countries.”

Since Seoul, accusations that the Fed is deliberately trying
to depreciate the dollar have faded, but charges that it is
fuelling global inflation remain lively.

Whether any of these issues will be resolved at the upcoming
meetings is open to question, to put it mildly.

(2 of 2)

** Market News International **

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