Friday, November 12, 2010

G20 agrees to refrain from competitive devaluation

Leaders of the world’s 20 major economies on November 12, refused to call on countries to stop undervaluing their currencies, leaving open a dispute between the U.S. and China that has raised the specter of a global trade war.

At the end of their two-day summit, the Group of 20 leaders including President Barack Obama issued a watered down statement that only said they agreed to refrain from “competitive devaluation” of currencies.

That call is of little consequence as the dispute that soured the G20 Summit is over Washington’s allegations that Beijing artificially keeps its currency, the yuan, weak to boost its exports.

The dispute over currencies is threatening to resurrect destructive protectionist policies like those that worsened the Great Depression in the 1930s.

The biggest fear is that trade barriers will send the global economy back into recession. A law the United States passed in 1930 that raised tariffs on imports is widely thought to have deepened the Great Depression by stifling trade.