The G20 Summit saw the so-called BRICS emerging economies – that is Brazil, Russia, India, China and South Africa – agreeing to commit 100 billion dollars (76 billion euros) to a currency reserve pool.
That comes amid the currency turmoil some of them are suffering from the prospect of the United States central bank soon reducing the stimulus dollars that have been flooding into the world economy.
Euronews correspondent at the summit James Franey said: “Four years ago the G20 leaders stood united in fighting the economic crisis, today they are cautiously optimistic about the prospects for a global recovery, but there is still no agreement on how to deal with the potential aftershocks ahead of the US Federal Reserve’s planned exit from its stimulus programme.”
India, which has suffered most, is the keenest backer of the currency reserve pool idea, to try and defend against a balance of payments crisis, but it will be next year at the earliest before it is finalised, and economists say it is not big enough, compared to the trillions traded in foreign exchange daily.
The European Commissioner President Jose Manuel Barroso told euronews that what is really needed is reform of those countries economies: “We would like the emerging markets to keep their growth as close as possible to their growth potential. In fact, now they are recognising that there are some problems – and it is different across countries – that they have also to address. Because growth in the emerging markets has been, and I hope it will continue to be, a driver for global growth.”
Those emerging economies enjoyed rapid growth thanks in part to a flood of cheap dollars, now those days are over and at the G20 even China and Russia said vulnerable countries, including India, will need to take steps to rebalance their economies.
In other words, they are not in the business of bailouts for countries that are in trouble.
China and Russia both run external surpluses and chided India for failing to tackle a yawning current account deficit that has exposed the rupee to a brutal selloff amid a broader flight to the US dollar.
Indian Prime Minister Manmohan Singh did get some support from Japan, as the two countries said they would expand a bilateral
currency swap facility to $50 billion (38 billion euros) from $15 billion (11.4 billion euros), strengthening the rupee’s defences.