The US urged G20 nations to reform their currency regimes to shore up the fragile world economy after a devastating crisis, but faced resistance to its ideas today.
G20 finance ministers and central bankers opened a two-day meeting in South Korea, stalked by warnings of an all-out 'currency war' between debtor nations such as the US and export powerhouses such as China.
The G20 meeting, and parallel talks among the G7 grouping of North America, Western Europe and Japan, faced warnings that the world was at risk of relapsing into 1930s-style trade protectionism.
South Korean Finance Minister Yoon Jeung-Hyun urged his G20 guests to exploit their collective pressure on currency disputes, IMF reform and ensuring mega-banks cannot imperil the world economy two years after the crisis erupted.
History demanded that the G20 build 'a new post-crisis international economic order', he told the meeting, looking ahead to a November 11-12 summit in Seoul of leaders including the US and Chinese presidents.
Canadian Finance Minister Jim Flaherty, following talks with Chinese counterpart Xie Xuren, said 'there's a willingness (by Beijing) to open the door to more flexibility over time'.
In a letter to his G20 colleagues, US Treasury Secretary Timothy Geithner urged nations running big trade surpluses to change their exchange-rate policies. He did not name the nations but China seemed the clear target.
He suggested that countries should aim to reduce surpluses or deficits to a targeted share of gross domestic product in the coming years. Officials said the target would be 4% of GDP by 2015.
But other major exporters such as Germany would also be affected by the Geithner plan, and are already unhappy at being asked to remedy failings in the global financial system that were exposed by a US-generated crisis.
There was no immediate reaction from China today, but Japanese Finance Minister Yoshihiko Noda said Geithner's plan to focus on the current account was 'not realistic'. He expressed opposition to 'strict, numerical targets'.
Germany has also expressed doubts about the plan and Australian Treasurer Wayne Swan expressed wariness about a 'one-size-fits-all' approach.
With a super-loose US monetary policy weakening the dollar, G20 economies such as Japan, South Korea, Brazil and Indonesia have intervened in recent weeks to curb an alarming rise in their currencies.
But for the US, China lies at the root of the problem owing to its firm control over the yuan's value. Critics say that policy gives China's export machine an unfair edge.
China this week surprised markets by raising interest rates to rein in accelerating inflation. But it has shown no appetite for coordinated action to unshackle the yuan, for fear of driving many of its exporters out of business.
