By: Dr. Mike Campbell
Ahead of the summit meeting of the heads of state of the group of 20 leading economies next month, this weekend sees a meeting of their finance ministers in Gyeongju, in South Korea.
With concerns abounding that the tentative global recovery is faltering in Japan, America and even China, the ministers will have much to discuss. A central feature of their discussions is likely to be the current situation of the global foreign exchange system. America, Europe and Japan have voiced their concerns that China is deliberately interfering in the markets to keep the Yuan artificially cheap and so give Chinese exports a boost in their markets. China denies the claim and resents what it feels to be interference in its own sovereign affairs.
Japan has made a largely unsuccessful attempt to arrest the appreciation of the Yen, notably against the Dollar – a move it justified in terms of reducing volatility in the forex market, but one that was clearly designed to offer some support to her own exporters as they find their products being squeezed out of the market because of the high Yen.
The Japanese were unhappy with South Korean moves which were also styled as “reducing volatility” when their central bank intervened in the markets. The US is not immune from this criticism as mumblings that the US administration is deliberately allowing the Greenback to fall such that their exporters benefit. This led to a strenuous denial from Treasury Secretary Geithner.
With Japan, the USA and the British either pumping fresh money into their economies or thinking about doing so, there will be no shortages of talking points this weekend. It remains to be seen if any concrete proposals will emerge to defuse any talk of “currency wars”.