G20

Robin Harding

William Cline and John Williamson of the Peterson Institute have updated their estimates of ‘fundamental equilibrium exchange rates’: an exceptionally valuable cheat sheet for working out which currencies are over and under valued. (In fact they have not updated the FEERs, just their estimates of over and under valuation). 

Chris Giles

In September 2009 I blogged about the similarities between the Pittsburgh G20 framework for strong, stable and balanced global growth and the 2007 International Monetary Fund multilateral consultations, noting that when global leaders were wrong to say their commitments to get rid of imbalances were new or made significant progress.

Today it is genuinely déjà vu all over again as the “Seoul Action Plan” papers over long-standing divisions on currencies and trade imbalances. Leaders have been doing their best to say the summit was not a failure and that the engine of global economic cooperation is still firing on all cylinders.

What is the evidence? According to the G20 it is this new passage about indicative guidelines in the communique. 

Robin Harding

The renminbi is 17 per cent undervalued against the dollar while the yen is 8 per cent overvalued…

William Cline and John Williamson at the Peterson Institute for International Economics have done a service to the currency wars debate by releasing an update to their estimates of fundamental equilibrium exchange rates (FEERs) for various countries against the dollar in a very interesting policy brief

Alan Beattie

Yowkers. Interesting timing for Japan to go back into the FX markets and sell the yen for the first time in six years. On Wednesday the US Congress cranks up its China currency campaign again, this time the House as well as the Senate coming up with a bill allowing the US to block Chinese imports on grounds of currency misalignment.

As I wrote before, it’s not clear which way this development cuts. Does it make it easier to confront China because another G7 country has been forced to deal with the effects of Chinese currency intervention, or does it make it harder to argue that China should stop intervening when Beijing can point at Tokyo and say “them too”? 

Alan Beattie

Washington returning to work after August and the Labor Day holiday, and some chatter about the prospect that currency intervention by Tokyo will complicate the diplomatic drive to get Beijing to ease off selling renminbi. The White House just despatched (who else?) Larry Summers on a charm offensive to China to ask for faster appreciation, and would dearly like the rest of the G20 to line up behind its campaign. The bad cop role is being played by Congress, which is holding a high-profile hearing on the issue next week.

But as sage Washington observers note, that becomes a harder sell if a prominent G20 member – indeed, a G7 member – is intervening as well. Of course, Washington could argue that Japan was forced into extraordinary action because of China’s persistent intervention. But at the very least it complicates the choreography.

G20 nations must implement policies agreed at the latest summit, otherwise “large imbalances may re-emerge, with the attendant risk of disorderly adjustment.”

This from the Bank of Canada’s latest Monetary Policy Report, which finds Canadian growth “proceeding largely as anticipated” and risks to Canada’s economy roughly balanced. 

Chris Giles

What do you do if you are part of the Group of 20 and cannot agree on a coordinated global economic strategy? Agree to differ and set your best communique drafters to work.

The first thing to do is to find areas on which everyone can agree. Growth is the answer. When have you heard a leader or a finance minister openly advocating policies for stagnation? But alongside justice and education, growth is one of those words everyone advocates, but is meaningless. Growth is not a policy, but an aspiration. 

Having strengthened yesterday, the renminbi has opened sharply down against the dollar – indeed by the largest weakening since December 2008.

Market talk suggests Chinese state-owned banks bought dollars to save the central bank from having to intervene. If the currency is seen as a one-way bet, ‘hot money’ will likely flow into China – potentially interrupting monetary policy transmission and causing inflation. 

Forward prices for the renminbi are surging even though there is no exchange rate shift yet from the People’s Bank of China, which announced on Saturday it would “enhance flexibility” of the exchange rate. In a defensive statement lacking detail, the Bank said it would:

“further enable market to play a fundamental role in resource allocation, promote a more balanced BOP account, maintain the RMB exchange rate basically stable at an adaptive and equilibrium level, and achieve the macroeconomic and financial stability in China.”

But two things suggest this change will not prove as significant as it could be. First, the language. The statement talks of ‘furthering’ and ‘enhancing’ the current policy, rather than changing it. The only change word, ‘reform’, is used to refer to a continuing process.

Second, the defensive tone and text. “The basis for 

Chris Giles

Global banking levy – RIP. I have consistently argued that no one should get too excited about the idea because it will not happen. And now it has been consigned to the dustbin of history.

The G20 communique is pretty vague about the execution: