On the last day of the G20 summit in Seoul, global leaders continued to grapple with a formula to ease currency strains. Despite overnight negotiations, leaders have so far failed to arrive at a consensus over the wording of the closing statement.
In his speech at the summit, Prime Minister Manmohan Singh said that competitive devaluation of currencies must be avoided.
China and Germany have been critical of the U.S. where the Federal Reserve last week announced a bond-buying program that effectively cut the value of the dollar. In turn, the U.S. has criticized China for holding its currency artificially low.
A weak currency helps a country's exports because they become cheaper to sell overseas. That can lead to big trade imbalances and protectionist reactions from government's trying to keep their own countries' goods from being priced out of the world market.
The PM stressed said that the efforts to achieve strong recovery in the global economy are important. He attributed the revival of protectionist sentiment to high unemployment in developed nations.
The PM said that much remains to be done to bring our economies onto a sustainable growth path and it is not easy to reach an agreement on sustainable current account deficit targets.
He stressed on the need for economic prudence and said that deficit countries must follow a path of fiscal consolidation.
The PM said that reserve currency countries have a special responsibility to ensure their policies don’t lead to destabalizing flows. Recycling surplus country funds into developing countries will address demand imbalances, he added. We should leverage imbalances of one kind to redress imbalances of another type, the PM said.
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