The G-20's failure to adopt the U.S. stand has underlined Washington's reduced influence on the international stage, especially on economic matters. In another setback, Obama also failed to conclude a free trade agreement this week with South Korea.
The biggest disappointment for the United States was the pledge by the leaders to refrain from "competitive devaluation" of currencies. Such a statement is of little consequence since countries usually only devalue their currencies — making it less worth against the dollar — in extreme situations like a severe financial crisis. but the dollar is going up the last few days after bond purchase announcement, strange! The statement decided against using a slightly different wording favored by the U.S. — "competitive undervaluation," which would have shown the G-20 taking a stronger stance on China's currency policy.
The crux of the dispute is Washington's allegations that Beijing is artificially keeping its currency, the yuan, weak to gain a trade advantage.
U.S. business lobbies say that a cheaper yuan costs American jobs because production moves to China to take advantage of low labor costs and undervalued currency.
A stronger yuan would shrink the U.S. trade deficit with China, which is on track this year to match its 2008 record of $268 billion, and encourage Chinese companies to sell more to their own consumers rather than rely so much on the U.S. and others to buy low-priced Chinese goods.
But the U.S. position has been undermined by its own central bank's decision to print $600 billion to boost a sluggish economy, which is weakening the dollar.
Also, developing countries like Thailand and Indonesia fear that much of the "hot" money will flood their markets, where returns are higher. Such emerging markets could be left vulnerable to a crash if investors later decide to pull out and move their money elsewhere.
Obama said China's currency policy is an "irritant" not just for the United States but for many of its other trading partners. The G-20 countries — ranging from industrialized nations such as U.S. and Germany to developing ones like China, Brazil and India — account for 85 percent of the world's economic activity.
"China spends enormous amounts of money intervening in the market to keep it undervalued so what we have said is it is important for China in a gradual fashion to transition to a market based system," Obama said.
The dispute is threatening to resurrect destructive protectionist policies like those that worsened the Great Depression in the 1930s. The biggest fear is that trade barriers will send the global economy back into recession.
The possibility of a currency war "absolutely" remains, said Brazilian Finance Minister Guido Mantega.
Friday's statement is also unlikely to resolve the most vexing problem facing the G-20 members: how to fix a global economy that's long been marked by huge U.S. trade deficits with exporters like China, Germany and Japan.
Americans consume far more in foreign goods and services from these countries than they sell abroad.
The G-20 leaders said they will try to reduce the gaps between nations running large trade surpluses and those running deficits.
The "persistently large imbalances" in current accounts — a broad measure of a nation's trade and investment with the rest of the world — would be measured by what they called "indicative guidelines" to be determined later.
The leaders called for the guidelines to be developed by the G-20, along with help from the International Monetary Fund and other global organizations, and for finance ministers and central bank governors to meet in the first half of next year to discuss progress. http://news.yahoo.com/s/ap/20101112/ap_on_bi_ge/as_economic_summits
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