No one wins devaluation race

In their meeting in Gyeongju, South Korea, last week, finance ministers and central bank governors from the G20 developed and emerging economies agreed to “move toward more market-determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies.” It is meaningful that the G20 made such an agreement in view of the fact that both developed and emerging economies are now eager to devaluate their currencies to increase their exports. If the current situation is left unchecked, every country will lose.

The United States’ easy money policy is causing the value of the dollar to fall against other currencies. As a result, the yen is climbing toward a record high level, hurting Japan’s export sector. Because the easy money policy adopted by developed countries as a whole to stimulate their economies has shunted funds into emerging economies, causing real estate bubbles, inflation and a rise in the value of their currencies, these countries are having difficulty managing their economies. Developed countries think that China is pursuing the policy of keeping the yuan’s value at a low level, excessively helping its exporters.

In the meeting, the U.S. and South Korea proposed a numerical target of limiting the current account surplus or deficit of each G20 country to 4 percent or less of its gross domestic product by 2015. Apparently, the U.S. had China in mind. But the G20 countries instead agreed to “strengthen multilateral cooperation to promote external sustainability and pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels.”

On the surface, the G20 countries appear to share a consensus that current account imbalances should be corrected. Given the global economic situation, it is imperative that each G20 country considers what steps are the best for the world economy. They must keep in mind that being obsessed with their self-centered policy options will damage the global economic system.