The G20 statement was released early this morning and as we expected, there were no major surprises. No country was singled out and the Group of 20 fell short of establishing current account targets. The same currency language penned at the Finance Ministers and Central Bankers meeting a few weeks ago was used in the final statement. However the issue of limits on current account surpluses and deficits was not completely shoved under the table as the G20 committed to developing indicative guidelines made up of a "range of indicators" to determine which countries have large imbalances that "require preventive and corrective actions." As Canadian Prime Minister Harper said, these are "not going to be easy issues to resolve." As a result, we still do not expect the G20 to be able to agree on specific current account limits next year.
The official G20 stance on currencies is the following ( Official G20 statement ):
Countries commit to "moving toward more market-determined exchange rate systems". They will do this by "enhancing exchange rate flexibility to reflect underlying economic fundamentals, and refraining from competitive devaluation of currencies".
"Advanced economies, including those with reserve currencies, will be vigilant against excess volatility and disorderly movements in exchange rates. These actions will help mitigate the risk of excessive volatility in capital flows facing some emerging countries."
However in what appears to be an acknowledgement of the problems created by the Federal Reserve's monetary policies and a weak dollar, the G20 also said countries with "overvalued flexible exchange rates" may take "carefully designed macro-prudential measures" such as capital controls and possibly even intervention. This waters down their pledge to resist protectionism in all its forms. The Group of 20 will most likely avoid implementing export restrictions but capital controls and currency intervention can also be deemed a form of protectionism.
South Korea, the host country believes that "we are now getting out of the so-called currency war," but based upon the language used in the statement, nothing substantial was achieved on a currency front.
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