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 Richmans' Trade and Taxes Blog

France pushing G-20 deal to adress global imbalances
Howard Richman, 2/17/2011

According to a Reuters article published this morning. The G-20 will meet this weekend to discuss measures that can be used to determine whether or not there are global trade imbalances. French President Sarkozy is pushing the agenda. Here's a selection:

G20 countries will have made major progress this weekend if they clinch a preliminary accord on what measures they will use to benchmark and address mismatches in the world economy, France's economy minister said on Thursday....

Her remarks came amid concern that differences of opinion within the Group of 20 may prevent finance ministers from reaching agreement at the meeting on a five-item list of indicators on which to base judgments on whether countries should alter economic policy to redress imbalances....

Such an agreement would let Europe and North America recover from the Great Recession by selling increased exports to the emerging market countries without getting the same amount of additional imports from the emerging market countries. Currently, the emerging market governments are preventing worldwide trade balances by buying oodles of foreign reserves. Figure 8 from Federal Reserve Chairman Ben Bernanke’s November 19, 2010, speech in Frankfurt Germany, shows that 13 of 16 emerging market governments devoted more than 3% of their countries’ GDP to currency market interventions from September 2009 to September 2010. In order to buy foreign reserves without causing much inflation, they have been suppressing their own people's access to credit.

I can't see why China's ministers would agree to any such agreement unless they are getting something big in return. Perhaps Sarkozy is offering that the IMF will guarantee China's more than $2 trillion of reserves (mostly dollars) with IMF special drawing rights (SDRs). That way the dollar can collapse without China suffering much loss in the value of its savings.

Comment by Kevin Martin, 2/19/2011:

What China is getting in return is a stable international market. The global economy is a mess, China's is an important player in the global economy and without their support any attempts at a global solution will be flawed. The best chance for a global solution is with the SDR and it's history as an international trading tool. It is hoped eventually that the Yuan and many other currencies will become a part of the SDR, but there are many difficult issues to work through first. The G20 has only recently acquired policy control of the IMF from the CRF. This first meeting sounds like a good start to establish some common metrics.