SEOUL, (Reuters) – President Barack Obama responded to widespread criticism that the United States is deliberately weakening the dollar as he tried to swing the G20 spotlight back onto global imbalances at a gathering of world leaders in Seoul.
The U.S. easy-money policy has been under fire since the Federal Reserve announced last week it would pump an additional $600 billion into the economy.
In an attempt to ease tensions, U.S. Treasury Secretary Timothy Geithner said he was optimistic the Group of 20 rich and developing countries could reach a deal to limit trade imbalances during a two-day summit today and tomorrow.
Still, a G20 draft statement cited by Dow Jones Newswires appeared to offer no new proposals on how to resolve differences between struggling developed nations and rising economic powers such as China and Brazil.
Obama, in an attempt to take his own country’s policies out of the glare, said a strong U.S. economy was vital to the global recovery and urged his G20 counterparts to put aside differences and help promote economic growth.
“When all nations do their part — emerging no less than advanced, surplus no less than deficit — we all benefit from higher growth,” Obama said in a letter sent to G20 leaders on Tuesday.
The bridge-building came after a day of heated arguments as negotiators struggled to hammer out a statement that all G20 leaders could sign. Critics say the Fed is weakening the dollar to the detriment of other nations, and recent trade data showed both China and the United States gained from currency moves.
Obama, however, argued that the dollar’s strength ultimately depends upon the strength of the U.S. economy.
Deputies on mobile phones shuttled in and out as they tried to draft a final statement, to be released tomorrow, but remained far apart on pivotal issues such as currencies.
“We had to open the door because the debate was so animated and the room was getting hot,” G20 spokesman Kim Yoon Kyung said, referring to day-long talks on Tuesday.
The Dow Jones report said that while an early draft repeated an initial pledge to “refrain from competitive devaluations,” it also included alternative language on avoiding “competitive undervaluation.”
An Indian official close to the negotiations said discussions on reducing current account imbalances were “picking up” after a rocky start.
Shares of Japanese banks jumped after a Financial Times report said new rules on higher capital requirements being discussed at the G20 would not be applied to most big Asian banks as they do not have global businesses.
The Group of 20 leaders had hoped this week’s gathering, the fifth since the financial crisis exploded in 2008, would mark a new era of global cooperation. In Seoul, organizers of the meeting printed banners proclaiming a slogan of “Shared Growth Beyond Crisis.”
But the unity forged in crisis has given way to diverging national policies that reflect a multilateral recovery from the recession, prompting critics to question the effectiveness of the G20 grouping itself.
In his letter, Obama sought to return the discussion to global imbalances and insisted that the United States was not the only country that must change its ways.
“Just as the United States must change, so too must those economies that have previously relied on exports to offset weaknesses in their own demand,” he wrote in a thinly-veiled reference to China.
While most major economies grapple with sub-par growth, leaving them reliant on exports, emerging powers such as China and Brazil have roared back to pre-recession strength.
China’s politically contentious trade surplus widened to $27.1 billion in October, more than economists had expected, according to figures released yesterday.
Despite near-record imports from China, the U.S. trade deficit narrowed more than anticipated by markets in September, to $44 billion, government data showed.
A Chinese official who has been helping draft the G20 communique said the leaders should not discuss the yuan or any other currency specifically. The Indian official also said the final statement would not single out any particular currency.
But the yuan rose to its highest level against the dollar since its revaluation in July 2005 after the People’s Bank of China fixed a record yuan mid-point.
Beijing typically loosens its tight grip on the yuan as a goodwill gesture ahead of political events that apply pressure on China for more yuan appreciation.
