The G20 process

Congregate, implicate, obfuscate

Global imbalances are bad, and it’s all your fault

“IT MEANS what it means what it means, just like a rose is a rose is a rose.” That is how Christine Lagarde, France’s finance minister, explained the statement on what to do about global economic imbalances issued after a meeting of her G20 peers in Paris. She might have said: “just like fudge is fudge is fudge.”

The ministers agreed to agree by April on a set of “indicative guidelines” which would be used to assess countries’ domestic and external balances. The ministers stressed that these were “not targets”. They would be set with “national or regional circumstances” in mind. When the guidelines which are not targets materialise, they will take “due consideration of exchange-rate, fiscal, monetary and other policies”.

The verbal contortions reflect deep divisions, a sense of which can be gleaned from a series of papers on imbalances written by G20 central-bank governors at the request of the Bank of France*. (France is the G20’s current chair.) All the central bankers acknowledge that imbalances are a problem, and that a solution will involve some degree of policy co-ordination. Each proceeds to play down the role of his own country.

Muhammad al-Jasser of Saudi Arabia is at pains to emphasise that “the surpluses of the oil-exporting economies of the Gulf [are] overstated as a problem.” Masaaki Shirakawa of Japan, another surplus country, advises against getting too hung up on current-account imbalances. America’s Ben Bernanke concedes that domestic policies, including “unusually low” interest rates, fuelled America’s housing boom—but blames excess emerging-market saving for the low rates.

Governors in countries with lots of foreign-exchange reserves have justifications to offer. Sergey Ignatiev, who heads Russia’s central bank, writes that building up reserves is an “objective necessity” in the absence of decent international loan facilities. Argentina’s central-bank governor argues that the “accumulation of foreign-exchange reserves is a powerful instrument of self-insurance.”

Western governors put more stress on exchange rates. Mark Carney of Canada says that “real exchange-rate adjustment …will be critical for the rebalancing of global growth.” Italy’s Mario Draghi and France’s Christian Noyer agree.

Their implicit target is China. Predictably enough, Zhou Xiaochuan of the People’s Bank of China reckons that simple adjustments in nominal exchange rates cannot influence savings behaviour. In discussing the link between high savings rates and inadequate social-security systems, he says at one point that the connection “is based on the assumption that human behaviours are rational.” Looking at the blame-shifting among his peers, that may be unwise.



*Banque de France Financial Stability Review, February 2011 www.banque-france.fr/gb/publications/rsf/rsf_022011.htm

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