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Send  Print  Share  RSS  Twitter  12 Nov 2010

G20 Gives EM Room to Maneouvre on Currencies

 

Johannesburg, Nov 12 (I-Net Bridge) - The Group of 20 (G20) rich and
developing nations meeting in Seoul, South Korea has resolved to allow emerging
markets to use more measures to deal with strong currencies in their
economies.

The currencies of emerging markets have been stronger in recent months on
the back of large capital inflows as investors search for higher yields in those
markets.

Leaders at the G20 meeting agreed that in circumstances where countries
are facing burdens of adjustment, policy responses in those emerging market
economies with adequate reserves and increasingly overvalued flexible exchange
rates may also include carefully designed macro-prudential measures.

Barclays Capital analyst Giulia Comotti said in a statement that some
emerging markets might use this as an excuse to put on new capital control
measures and it will be important to see if there is further capital control
measures following the G20 meeting.

More capital controls could make it more difficult for the liquidity
floating around in the global system due to loose monetary policy to find a
home, so currencies that do not have capital controls could outperform going
forward, Comotti said.

Leaders have also agreed to avoid competitive devaluation of currencies,
tackle global trade imbalances, fight protectionism, move towards more
market-determined exchange rate systems and enhance exchange rate
flexibility.

Some are not optimistic that leaders will stick to commitments made at
the summit.

I think what they're [leaders] trying to do is put forward a united
front but I'm not convinced. What we're probably going to see is low intensity
of trade wars that we've seen over the past few months, Efficient Group chief
economist Dawie Roodt said.

I-Net Bridge, Tel: +27-11-280-0832, newsdesk@inet.co.za

Copyright 2010 I-Net Bridge. All rights reserved.


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