The G-20 group of major economic powers arranged to cooperate more closely on exchange rate policy and to work towards limiting trade imbalances.
As nations around the world work to restore economic growth following the global financial crisis, many have adopted policies aimed at boosting exports as a way to create more jobs and greater income for their citizens. Some have taken measures to prevent a rise in the value of their currencies against those of other countries. A relatively cheaper currency can make a country’s exports more competitive. This approach, however, potentially leads to a competitive spiral that destabilizes markets, skews international trade balances, and ultimately benefits no one.
At a meeting of Finance ministers held in South Korea on October 23, the G-20 group of major economic powers arranged to cooperate more closely on exchange rate policy and to work towards limiting trade imbalances. It was an important agreement that proves again the value of taking multilateral action to address international problems.
At the urging of President Barack Obama last year, the G-20 nations agreed to coordinate their economic policies to stimulate growth following a financial crisis that froze credit, reduced trade, and threw millions of people out of work. Governments from Beijing to Berlin to Washington to Brasilia increased spending to spur growth. They also resisted adopting protectionist measures aimed at boosting their own economies at the expense of others.
These actions were helpful in halting the decline in global output and promoting a return to economic growth. As economic conditions improved, however, some signs of national self-interest reappeared. The agreement by the G-20 Finance Ministers to curb trade imbalances and cooperate to limit protectionist exchange rate policies is a welcome development that reflects member countries’ determination to cooperate in support of continued global economic recovery and longer-term, sustainable growth.