Finding a currency solutionThe November conference of the Group of 20 economic powers in Seoul may be forced to take up the sensitive topic of exchange rates. The broader theme of establishing a fair global financial system may be pushed aside.
Some analysts expect a clash over currency policy, which can be designed to buttress sagging exports and economies. U.S. Treasury Secretary Timothy Geithner recently told Congress that President Barack Obama plans to marshal international support to press China to appreciate its undervalued currency during the G-20 meeting of leaders in Seoul.
The G-20 set for Nov. 11-12 may become a battlefield of nerves over currency rates.
Japan kicked it all off with a stunning currency intervention - its first in six years. Japan’s pitch was that the recession-hit country with near zero-interest yields had no other option than market manipulation to weaken the strong yen. It would help Japanese products gain more price competitiveness in global markets.
Its solo act reignited resentment toward Asian exporters after China advocated Japan’s position, saying a stable currency is important to any country. The remark comes from a country notorious for intervening to keep its currency undervalued and raises the suspicion of self-serving motives.
The U.S. and European Union, however, are unlikely go lightly on China. The two regions are pressuring China and Japan to give up currency policies that create disadvantages for their Western exporters.
Currency problems are highly explosive. They can spark public anger and lead to trade retaliation, wreaking havoc on the fragile international consensus on lowering trade barriers.
Korea has a new role as the host of the upcoming G-20 event to arbitrate a solution. A conflict in currency markets must be avoided. Restoring order is the optimum choice.
Every time it is faced with economic crises, the U.S. has let the dollar tumble, spilling its crisis to other markets. It must end its habit of finding an easy escape to its structural problems. China and Japan, too, have long benefited from weak currencies to pile up their trade surpluses. The economic powerhouses must work toward easing imbalances in the global economy by letting the market decide currency rates.
The Korean economy largely depends on trends in the currency market. It is one of the most reliant markets on overseas sales. We must somehow find the middle ground to solve the problem. We must persuade countries that a currency battle is losing game for all.
It can trigger retaliatory trade actions, taking a toll on global trade and economic growth in the long run. No one can win.