G20 pledges currency discipline

Finance officials from the world's leading advanced and emerging countries vowed Saturday to avoid potentially debilitating currency devaluations, aiming to quell trade tensions that could threaten the global economy.

The Group of 20 ministers, meeting in Gyeongju, South Korea, also said they will pursue policies to reduce current-account imbalances, and they agreed to give developing countries more say in the International Monetary Fund.

The G20 group, which accounts for about 85 per cent of the global economy, stated it will "move towards more market-determined exchange rate systems" and "refrain from competitive devaluation of currencies."

Canadian Finance Minister Jim Flaherty praised the meeting's "accomplishments" on currencies but added that there is "more work to do between now and Seoul on this issue," referring to the G20 summit set for Nov. 11-12.

Saturday's agreement came amid fears of a so-called currency war, in which countries would devalue their own currencies to gain an export advantage over competitors, causing a rise in protectionism and damaging global trade.

"Our co-operation is essential," the statement said. "We are all committed to play our part in achieving strong, sustainable and balanced growth in a collaborative and co-ordinated way."

The agreement includes no specific commitments but appeared to be a step forward from a similar meeting two weeks ago in Washington at which finance officials failed to resolve differences.

U.S. Treasury Secretary Timothy Geithner praised the results of the latest meeting, calling them part of necessary changes in how the global economy operates.

"If the world economy is going to be able to grow at a strong, sustainable pace in the future, if we're going to be successful in building a more stable global financial system, and if we're going to be able continue to expand opportunities for trade and preserve an open trading system, then we need to work to achieve more balance in the pattern of global growth as we recover from the crisis," he told reporters.

Geithner had pushed for a commitment to reducing current-account imbalances "below a specified share" of gross domestic product "over the next few years."

But the G20 statement said only that imbalances — notably China's vast trade surplus with America and the rest of the world — would be "assessed against indicative guidelines to be agreed."

Countries in Asia and elsewhere have been trying to limit the strength of their currencies amid sustained weakness of the U.S. dollar, out of fear their exports will become less competitive. At the same time, China's currency has been effectively pegged to the dollar, provoking an outcry that it is being kept artificially low and giving Chinese exporters an unfair advantage.

A shift in Asian and other developing countries to become less reliant on exports for growth is seen as one of the adjustments needed to provide more stability in the world economy.

Stronger currencies would make imported goods cheaper in those countries and boost domestic spending.