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G20 set for showdown over 'currency wars'

G20 set for showdown over 'currency wars'
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A meeting of G20 leaders opened in the South Korean capital of Seoul on Thursday with fixing the global economy at the top of their agenda.

The world’s 19 leading national economies, plus the European Union, differ greatly over currency policy.
Some countries argue government intervention to weaken their currencies is distorting international trade.

The President of the European Commission Jose Manuel Barroso called on G20 members to “move towards more market-determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies.”

Barroso added: “No one should seek growth for its own sake at the expense of others; this would lead to a race to the bottom. The task of the G20 is to avoid that happening.”

There are fears that consistent devaluation could spark a so-called ‘currency war’ and upset the fragile global economic recovery.

President Obama defended the US Federal Reserve’s decision to pour more than 600 billion dollars, about 435 billion euros, into the American economy to spur growth. Arriving in South Korea, the president said it would shore up the US recovery and help the global economy.

“When all nations do their part — emerging no less than advanced, surplus no less than deficit — we all benefit from higher growth,” Obama said.

But China says the move will weaken the dollar, blunting the competitiveness of export-driven emerging economies. Countries looking to export their way to growth gain a competitve advantage with a weaker currency as it makes their products cheaper. At the same time, investors seeking higher returns look to inject their funds into emerging markets, which in turn strengthens local currencies.