By: Dr. Mike Campbell
Finance ministers from the group of 20 leading economies met at the weekend in South Korea. One of the concrete measures to emerge from the meeting was an agreement to give emerging economies more of a say in IMF affairs.
The newer members of the club will get an additional 6% of the vote, but the USA will continue to be able to wield a veto in strategic matters. As part of the shake-up, western Europe will lose two seats on the IMF board and will be replaced by developing nations.
On the more substantive issues of impending currency wars, G20 finance ministers pledged that they would not intervene in the currency markets to obtain competitive devaluation advantages. The exchange rate for a currency has no effect on the domestic market, but a weak currency can give exporters a competitive edge and also price importers out of the market.
Some accuse the Americans of deliberately allowing the Dollar to weaken for just this reason. The Americans strenuously deny this and in their turn, accuse the Chinese of having a policy of keeping the Yuan artificially low so as to advantage their exports in world markets. The Japanese are reliant on exports and are clearly beginning to feel the pain of the high Yen, but none of their international partners seems keen to address this problem which really only hurts the Japanese economy right now.
The Dollar has come of fresh 15 year lows against the Yen and is currently trading at 81.0150 Yen. The Greenback is likely to come under renewed pressure if the Federal Reserve indulges in a further round of quantitative easing next month, as widely expected.