The G-20, whose finance ministers and central bankers meet in Paris this weekend, no longer looks as unified, and thus as relevant, as it did in the heat of the global financial crisis. Its summit meeting in Seoul last November left a lot of unfinished business on the table — global imbalances, capital flows, America’s monetary policy and China’s exchange rate. This weekend’s ministerial meeting has to pick these up again if there is to be any hope that they can be cleared off the table when their bosses convene for their heads of state and government summit in Cannes in November.
Since Seoul, there has been some progress on the issue of the yuan’s revaluation and China’s rebalancing by shifting from export-led to domestic-demand-led growth, though neither far nor swiftly enough to satisfy Beijing’s critics on either score. China, like most of the advanced G20 members with the notable exceptions of the U.S. and Japan, has also made a start on draining off some of the liquidity pumped in by stimulus programs. Beijing has also made more moves to make the yuan a more international currency though it is not yet sufficiently convertible for inclusion in the currency mix behind the IMF’s Special Drawing Rights. However, reform of the international monetary system and global governance are pet projects of this year’s G-20 president, France’s President Nicolas Sarkozy. Those could put some wind behind China’s sails in Paris, but it will be mostly rhetorical wind we suspect. A fully internationalized yuan remains a distant prospect.
The most that is likely to be achieved in Paris is some sort of agreement over which national economic indicators should be used to analyze global imbalances. Even these will be no more than broad-brush current-account measures. Numerical targets to set against those indicators aren’t in even the wildest imaginations. China, along with Germany, the world’s two biggest exporters, have made clear that they have set their faces against any target for current-account imbalances expressed as a percentage of GDP.
Commodity prices, and particularly the high prices of agricultural commodities, are most likely to hijack the agenda. This is an issue of acute interest to Beijing, where drought and inflation remain stubbornly persistent and thus politically threatening. The French have been pushing the idea of G-20 price controls, though it is far from clear how those would work in practice even if they could be agreed on, which is doubtful given the disparate commodities interests of the G-20 members. Sarkozy has called a first ever meeting of G-20 agriculture ministers in May, but it is whether finance ministers decide to doing anything about commodity derivatives that will matter more. We suspect we shall see nothing more biting than a study.