The shift of economic power from western industrial nations to the emerging nations is finally recognized by the international financial institutions in a joint communiqué released after G20 meeting in South Korea on Saturday.
World is quickly becoming multi-polar as US is losing its hegemony over the world and other global players like Europe Union, and China are pushing for a greater share in global leadership.
US Treasury Secretary Timothy Geithner told Bloomberg Television after G20 ministerial meeting “We’ve had a long period where the major economies, principally Japan, Europe and the United States, bore all the burden of cooperation on exchange rate questions. They dominated all those discussions, but the world’s changed dramatically and it’s very important that we’re discussing these things with China, with India, with Brazil, with the emerging market economies all around the world that are growing so rapidly.”
US treasury secretary had failed to develop consensus among the members of developed western nations to bully China into accepting monetary policy recommended by USA in IMF meeting few weeks ago. Pointing to China Geithner had also demanded that IMF should not accept emerging economies claim to participation in the governance of International Monetary Fund until they rapidly appreciate their currency.
China called US recommended monetary strategy a “shock therapy” and declined to abruptly raise the value of yuan by 40 percent arguing that such a currency appreciation will create social unrest and economic instability in China. Japan and Brazil had intervened to protect their national economic interests by limiting their currency appreciation prior to the IMF meeting.
The IMF meeting had failed to push US agenda, but it had a sobering affect on the global players. German minister severely criticized US monetary policy in a visit to China after the meeting. Emerging economies expressed their fears that USA wants to flood their economies with cheap US dollars.
Economists pointed out that US wants to reduce its debts to China by making them appreciate yuan to shrink its 2.65 trillion forex reserves kept in US dollars. Most of the countries have their forex reserves in US dollars and cheaper dollars will cause their forex reserve to evaporate.
The pronouncement of IMF governance reform to include emerging economies in the joint statement at the end of G20 ministerial summit came as no surprise since at the conclusion of the IMF meeting earlier its chief, Straus Kahn had announced that the Fund is preparing a deal for the participation of emerging economies in the governance of IMF.
US treasury chief Geithner acceded, before heading to China for an unscheduled visit after the Group of 20 meeting, “They’re (China) an independent country, a large economy. They need the flexibility to run their policies in a way that makes sense for China. And that requires that their exchange rate move up over time as they’re now doing and we want to see that continue. They’ve got a ways to go but I think they’re committed to do that.”
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