The G20 summit has been pitched as a chance for leaders of
the countries that account for 85 percent of world output to prevent “currency
wars” from spreading to become a rush to protectionism that could imperil the
global recovery.
It has been overshadowed by disagreements over the US
Federal Reserve’s quantitative easing (QE) policy under which it will print
money to buy $600 billion of government bonds, a move that could depress the
dollar and cause a potentially destabilizing flow of money into emerging
economies.
“I will say that the Fed’s mandate, my mandate, is to grow
our economy. And that’s not just good for the United States, that’s good for
the world as a whole,” Obama said.
“And the worst thing that could happen to the world economy,
not just ours, is if we end up being stuck with no growth or very limited
growth,” he said.
The US has frequently criticized China, saying it
deliberately undervalues its currency to boost exports.
Despite US officials repeating the mantra that they believe
in a “strong dollar,” China says Washington is engaged in the same thing that
it stands accused of.
“As a major reserve currency issuer, for the United States
to launch a second round of quantitative easing at this time, we feel that it
did not recognize its responsibility to stabilize global markets and did not
think about the impact of excessive liquidity on emerging markets,” Chinese
Vice Finance Minister Zhu Guangyao said at a briefing in Beijing on Monday.
The US quantitative easing policy was unveiled last week to
jeers from emerging market powerhouses from Latin America to Asia. Russia
renewed its assault on the program on Monday.
“Russia’s president will insist... that such actions are
taken with preliminary consultations with other members of global economy,”
said Arkady Dvorkovich, a Russian official who is preparing the country’s
position in Seoul.
The US measures have triggered concerns over inflation and
gold, a traditional hedge against rising prices, briefly powered to a record
high above $1,398 an ounce.
India is Obama’s first stop in a 10-day trip to Asia that
will include Indonesia and Japan.
He will arrive in Seoul for the November 11-12 summit
weakened by a crushing congressional election defeat for his Democratic Party
and under fire from all sides. Germany described US economic policy as “clueless”
last week.
The US has already backed down on one proposal for the G20,
a measure that would cap current account balances at 4 percent of gross
domestic product, something economists said was clearly aimed at China.
At the weekend, US Treasury Secretary Timothy Geithner
backed away from the numerical target that had been rejected by China, Germany,
Japan and others in a sign that global financial power had slipped from US
hands.
The risk of a negative outcome in Seoul appears to be
increasing, or at the very least, an agreement that papers over the huge gaps
and allows countries to pursue their own economic policies whether it be
intervening in currency markets like South Korea and Japan or printing dollars.
“Judging by the critical response of emerging market
governments to QE, the likelihood of a cease-fire in the currency war is slim,”
RBC Capital markets said in a report published on Monday.
