G20 meet to highlight China's world finance role

AP News
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Posted: Mar 30, 2011 10:32 AM
G20 meet to highlight China's world finance role

Setting a sharp tone for talks by finance mandarins from the Group of 20 leading economies on Thursday, a prominent Chinese economist renewed Beijing's attacks on U.S. dominance of the world financial system, accusing the U.S. Federal Reserve of playing an unfair and destabilizing role.

The comments by Xu Hongcai, published this week by the government-affiliated China Center for International Economic Exchanges _ a co-host of the G-20 event in the eastern Chinese city of Nanjing _ reiterate Beijing's long-standing complaints over U.S. economic policy and reliance on the U.S. dollar as the main global reserve currency.

"The U.S. Federal Reserve acts without any constraints, adding to the lack of stability in the global monetary system and also its unfairness. Only the United States can have an independent monetary policy and other countries must follow," Xu wrote, accusing U.S. stimulus of driving inflation in oil and commodity prices.

Although not formal policy statements, Xu's comments appeared aimed at deflecting criticism of China's own currency policies and highlighting complaints over U.S. economic stimulus that Beijing says is fueling inflation and weakening the value of its holdings of U.S. dollar assets.

Beijing has ruled out any major discussion of its own currency policies _ viewed by Washington and other trading partners as a key factor in global economic imbalances _ at the Nanjing meeting, saying the gathering is unofficial and informal and that its exchange rate policies are not on the agenda.

That aim may be aided by the distractions of crises in Libya and Japan.

French President Nicolas Sarkozy, who is chairing the G-20 this year, made a brief stop in Beijing on Wednesday evening in an effort to soothe China's anger over U.S. and European airstrikes aimed at enforcing a U.N. no-fly zone over strife-torn Libya.

After attending Thursday's G-20 "seminar" of central bank governors and Cabinet ministers on monetary issues in Nanjing, Sarkozy is to fly to Tokyo. There he will offer support for Japan's effort to resolve a nuclear plant crisis and overcome the destruction wrought by the March 11 earthquake and tsunami which killed at least 11,000 people and left many thousands more missing.

But disagreements over currencies and monetary policies are bound to shape the talks even if only indirectly, analysts said.

"There are differences of opinion between developed countries and developing countries over monetary issues," said Zhang Xinfa, an economist at Galaxy Securities in Beijing, pointing to the stimulus-oriented policies in the U.S., Japan and Europe that Beijing has said are helping drive inflation in commodity and asset prices.

"That's why they have fundamental differences over the future trend of exchange rates," Zhang said.

Sarkozy's office said the goal of the talks is to establish a common diagnosis of the current situation and outline reforms the G-20 could launch at its summit in Cannes in November.

The talks include U.S. Treasury Secretary Timothy Geithner and his Chinese counterpart Vice Premier Wang Qishan, International Monetary Fund chief Dominique Strauss-Kahn, and World Bank President Robert Zoellick. But they are not expected to yield any formal political decisions.

Days ahead of the Nanjing meeting, former British Prime Minister Gordon Brown and other top economic policymakers urged the world's most powerful economies to seal a "global growth pact" to fight unemployment.

The G-20 is facing a tough challenge in fostering prosperity for the divergent economies of developing and mature economies, he said.

During Brown's leadership of the G-20 in 2009, the group made progress on forging tighter financial regulations to help prevent a recurrence of the meltdowns in housing markets that brought on the global financial crisis.

France has made reform of the global monetary system a focal point for its yearlong presidency of the G-20, along with reducing economic imbalances and volatility in commodity prices, and has sought China's support.

China and key emerging economies, meanwhile, are eager to see changes that might reduce their own reliance on volatile dollar-denominated assets.

One option championed by Beijing is the use of Special Drawing Rights, a quasi-currency used by the IMF in its dealings with member governments, as an international reserve currency _ a stance reflecting Beijing's own unease over its investments of more than $800 billion of its $2 trillion in foreign reserves in U.S. Treasuries.

Xu, in his essay, deemed use of SDRs as a substitute for the U.S. dollar as the world's reserve currency a "realistic option" for reinforcing global financial stability.

During recent talks in Paris, G-20 finance chiefs appeared close to agreement on tracking dangerous imbalances in the global economy by monitoring several key indicators: current accounts, real effective exchange rates, currency reserves and public and private debt levels.

China, however, has opposed focusing on exchange rates due to its resistance to letting its own currency, the yuan, appreciate against the dollar.