Finance ministers of the world’s major economies reached a fudged accord on Saturday on how to measure imbalances in the global economy after China prevented the use of exchange rates and currency reserves as indicators.
French Finance Minister Christine Lagarde, who chaired the Group of 20 talks, said the deal nevertheless represented a significant step toward better coordination of economic policies worldwide to help prevent another financial crisis.
“It wasn’t simple. There were obviously divergent interests but we were able to reach a compromise on a text that seems to us to be both balanced and demanding in its implementation,” she told a news conference.
Ministers and central bank governors agreed on a list of indicators including public debt and fiscal deficits, private savings and borrowing, the trade balance and other components of balance of payments such as net investment flows.
But at Chinese insistence there was no mention of the real effective exchange rate or of foreign currency reserves.
“Reserves have been dropped,” Lagarde acknowledged, adding that the deal included a mechanism to take account of exchange rates when assessing the overall balance of payments.
The United States and other western countries accuse Beijing of keeping the yuan artificially undervalued to boost its exports, hence accumulating massive foreign currency reserves that they say distort the world economy.
U.S. Treasury Secretary Timothy Geithner repeated after the talks that China’s currency “remains substantially undervalued” and its real exchange rate had not moved much despite a slow appreciation since a reform last June.