Sep 30, 2009
Nearly a year after the world narrowly avoided financial collapse, world leaders are gathered at Pittsburg to identify the next steps they need to take. The Group of 20 nations wrapped up with several key statements. But a lot of issues still remain blurred because it lacks specifics. The G20 positioned itself as the new steering body for the global economy; effectively replacing the G7/G8. India and China are now ranking ahead of old-world powers such as France and Italy.
The second important point is the agreement that the economic model founded on excess consumption is unsustainable. Countries like China need to change their economic model and rely less on exports. This is especially important if the US becomes successful in its intensions; that is, spend less, invest more, and focus on exports. A method to drive this objective is through depreciating the US dollar. While this may be a good strategy though, there was very little mention of currency depreciation at the G20 summit.
World leaders pledged that they will “withdraw out extraordinary policy support in a cooperative and coordinated way.” This statement implies that the G20 will try to avoid any disruptive currency depreciation or appreciation. If they do get involved in the currency movements of any member country, the timing, scale, as well as the sequencing of the process will vary on the circumstances.
The Financial Stability Board and the International Monetary Fund will also play a bigger role in policy coordination for the G20 countries. The organization will work together with finance ministers to determine the next steps ahead of the November meeting. Either way, the decision reached by the G20 will have a far-reaching impact on the world’s economy over the long-term.
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