SEOUL, South Korea — Prime Minister Stephen Harper says the reason the world’s currencies are out of whack has nothing to do with the United States, and everything to do with pegged exchange rates in China.
Speaking to reporters before heading into his first major G20 negotiating session with other leaders, Harper said that if the world is serious about fixing the global economy, countries with pegged exchange rates need to allow far more flexibility.
But he says he is not confident that the summit will lead to a firm resolution on currencies and global imbalances as he had hoped.
“They do have to be addressed. Will they be addressed at this conference? I’m not so sure,” Harper said. “But I think we’re getting a more frank discussion on these matters, that they do have to be resolved.”
Even a week ago, Canadian officials and analysts alike were optimistic that the Seoul summit would bring a meeting of the minds on how to gradually rebalance global trade and investment flows so that the international economy would not be so precarious.
Now, negotiators are barely clinging to the skeleton of an agreement reached two weeks ago by G20 finance ministers.
That deal saw countries vow to allow markets to decide their exchange rates and make sure their trade and investment balances did not bulge to extremes.
Harper had urged other G20 leaders to put some meat on those bones, by signing on to concrete measures that would fulfil the promises.
But while the ideas behind the finance ministers’ agreement are still in play, there is no consensus, and much acrimony, about how to even talk about next steps.
Instead of forging agreements in the lead-up to the summit, negotiators have added more brackets to their draft communique — indicating they have not yet agreed on key elements.
Instead of talking about how to rein in large trade and investment surpluses or deficits, they’re talking about far less potent “structural” changes that G20 members are making — moves to free up the movement of labour and investment within a country’s borders.
Officials are openly criticizing each other’s policies.
Many leaders are heaping scorn on the United States for its recent move to inject US$600 billion into the monetary system in order to stimulate its economy, complaining that the “hot” money is sending exchange rates around the world reeling, and that the stimulus is a way of devaluing the U.S. dollar.
But Harper says the United States didn’t have much of a choice, since interest rates can’t go any lower, and more fiscal stimulus would make the American deficit even more bloated.
“Under the circumstances, the quantitative easing policy is, in the short term, the only option available to the Federal Reserve,” Harper said. “And I’m not sure anyone else has provided any compelling argument as to what alternative policy they would pursue in the short term.”
Plus, Harper says the real reason currencies are reeling is because countries with pegged exchange rates aren’t allowing proper adjustments to be made to the direction of the global economy.
“The problem, in my judgment for Canada, is not the depreciation of the American dollar. It’s the fact the Canadian currency is accepting a disproportionate burden because other currencies are not appreciating the way they should.”
Harper’s support of U.S. actions put him in a small club at the G20. The United Kingdom has also spoken out about the need to let the United States do what needs to be done to assure growth in the American economy.
But Canada is in good company in its concern about China’s currency regime. China has allowed the yuan to appreciate by about three per cent since the Toronto G20 summit in June, but most G20 countries believe the appreciation is far too slow, exacerbating global instability.