Skepticism over G20 pledge to refrain from manipulation is growing
The latest fiscal woes in Europe and the U.S. are expected to invite wider skepticism on the efficacy of the Group of 20 meetings despite pledges from the G20 members for coordinating their efforts to weather global economic difficulties.
It was the 2008 global financial crisis that highlighted the role of the G20, which later decided to hold annual meetings to map out joint countermeasures among advanced and emerging countries to fight financial woes.
The U.S., which had suffered a crisis from insolvent subprime mortgage loans, was one of the great beneficiaries of the G20 coordination.
Due to Washington’s cheaper dollar policy, countries such as Korea, Japan, China and Brazil were pushed to engage in the so-called “currency war.”
Though the G20 reached an agreement, including promises to refrain from intervening in the foreign exchange market, during the Seoul Summit in November, it is looking more and more feasible that recent woes will paralyze the consensus.
The U.S. has recently been striving to pull down the value of the dollar to reduce its trade deficit following the eurozone crisis.
Even though European countries are closely monitoring the currency market, the possibility of another currency war is emerging.
An increasing number of global analysts say that the U.S. and Europe have lost international confidence, stressing that these parts of the world initiated the recent crisis, while at the same time emerging countries are expected to gamely tackle the agreements that are habitually favorable to a handful of advanced countries.
Korean officials have already warned that a global currency dispute could resurface to destabilize the global economy and force the local currency to appreciate.
The controversy seemed to subside following the November G20 Summit when the major economies agreed to move toward more market-determined exchange rate systems and refrain from competitive devaluation of currencies.
Korean policymakers and its central bank, however, point to signs of the disputes coming to the fore again with growing U.S. pressure on China to raise the yuan’s value.
“The U.S. foreign exchange rate policies are mostly designed to depreciate the overvalued dollar. It seems that the country is conducting the strongest-ever policy,” Bank of Korea economist Sung Byung-mook said in a policy report.
He said the country’s pressure used to include senior officials’ verbal statements urging currency appreciation of its trade partners.
“These days the U.S. is actively highlighting the issue via multilateral organizations such as the International Monetary Fund and the G20, as well as bilateral talks with a particular country.”
Citing Washington’s trade deficit, the BOK economist predicted that Korea could also face pressure to again raise the value of the won which has relatively become cheaper against the greenback after the Seoul summit.
