The burden of hosting Group of 20 meetings comes with the privilege of having the first opportunity to spin the results. South Korea's Finance Minister Yoon Jeung-Hyun, who was thrust into presiding over the equivalent of a peace conference to calm tensions over currency policy, took advantage of having the first word to declare the conflict over.
“We have come to an end to the disputes over exchange rates,” Mr. Yoon said Saturday after a meeting of economic ministers and central bankers.
Declaring an end to tensions might be taking it a little far.
Absent from a promise to avoid seeking an export advantage by manipulating the value of currencies was a tangible plan for ending the current volatility in foreign-exchange markets. But the stage is set for an agreement at November's G20 summit, and there is optimism a new accord will set the global economy on a steadier path.
“The G20 went a step in the right direction toward easing global exchange rate tensions,” strategists at New York-based investment bank Morgan Stanley said in a report on Sunday.
In a statement, ministers and central bankers pledged to “move towards more market determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies.” That is the most definitive language the group has used yet in defining an optimal approach to currencies, suggesting China, which has long defended its right to manage the appreciation of its currency, is starting to give ground. The G20 acknowledged China's complaint that loose monetary policy in the U.S., Japan and Europe is causing a stampede to higher-yielding assets in emerging markets.
The G20 statement said "advanced economies, including those with reserve currencies, will be vigilant against excess volatility and disorderly movements in exchange rates."
Brazilian Finance Minister Guido Mantega, who ignited the frenzy over exchange-rate policy by saying a month ago that the world was fighting a "currency war," didn't attend the meeting because he was busy fine tuning a new tax on foreign capital aimed at weakening the real. And Monday in Seoul, Canada's Finance Minister Jim Flaherty was scheduled to give a speech that warns of the "significant risk" that countries will act unilaterally in their responses to volatility in currency markets, highlighting a worry that G20 officials may say one thing, but do something different when they return to their capitals.
Still, Mr. Yoon was right to call his meeting a success. Officials achieved more than many analysts thought they would, given the level of bickering as ministers and central bankers arrived in South Korea last week.
In a bid to end the finger pointing over exchange-rate policy, the G20 sought to refocus the debate on what really matters: excessive trade surpluses and deficits, which reflect the lopsided economic growth that was the backdrop of the financial crisis.
The G20 promised to assess "persistently large imbalances" against "indicative guidelines." The International Monetary Fund was given the job of evaluating whether member countries' economic programs were consistent with the goal of "external sustainability."
To bolster the IMF's credibility as an arbiter, the G20 said it would double the capital the countries contribute to the fund and shift 6 per cent of the voting shares to emerging powers such as China from those held by advanced economies whose share of the global economy has diminished.
The G20 said European countries would turn over two of the seats they hold on the IMF's 24-member board of directors to emerging-market countries.
Yet as the Morgan Stanley analysts note, the statement from the finance ministers and central bankers is "heavy on ambition" and "light on immediate action." That will make for a brighter spotlight on the G20 leaders' summit in Seoul on Nov. 11-12. The prime ministers and presidents of the world's major economies have been handed the outline of a plan to show they are serious about maintaining the co-operative spirit that helped reverse the global recession.
Investors such as those who take advice from Morgan Stanley will be watching closely to see if the political will exists to act.
The debate will focus on the United States-led initiative to establish specific guideposts for what is meant by "excessive" trade and investment imbalances.
