Arguably the biggest challenge facing the Group of 20 summit in Seoul next week will be putting an end to a currency war that is placing the already fragile and uneven global recovery at risk.
For this to happen, world leaders will need to put cooperation above national interests.
But the omens are not good.
“If each country insists on its own interest during the recovery phase, it will bring about trade protectionism and will cause the world economy very big problems,” said Lee Myung Bak, president, South Korea ahead of the gathering he is hosting on Thursday.
President Lee said he expects ‘good results’ from the summit. But he faces a daunting task. In a bid to revive their ailing economies in the aftermath of the global financial meltdown of 2008, many of the world’s major players have allowed their currencies to depreciate in a bid to make exports cheaper and imports more expensive.
Competitive devaluation warfare has pitted the US dollar against the euro, developing countries against the developed world, and just about everyone against the yuan, which, by being virtually fixed to a depreciating dollar, has allowed China to maintain a huge trade surplus. The latest major move came Wednesday, when the US Federal Reserve announced a new round of ‘quantitative easing’ that will see the central bank buy up to $600 billion of government debt to boost economic activity amid persistently low economic growth and high unemployment rates.
{{/usCountry}}Competitive devaluation warfare has pitted the US dollar against the euro, developing countries against the developed world, and just about everyone against the yuan, which, by being virtually fixed to a depreciating dollar, has allowed China to maintain a huge trade surplus. The latest major move came Wednesday, when the US Federal Reserve announced a new round of ‘quantitative easing’ that will see the central bank buy up to $600 billion of government debt to boost economic activity amid persistently low economic growth and high unemployment rates.
{{/usCountry}}Faced with a rising real, outgoing Brazilian President Luiz Inacio Lula da Silva responded by saying he would travel to Seoul ready to take ‘all the necessary measures to not allow our currency to become overvalued’ and to ‘fight for Brazil's interests’.