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November 11, 2010    

Tension mounts ahead of G20 summit in South Korea

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by Kay Murchie

Several topics are set to be high on the agenda at today’s G20 gathering in South Korea.

The group of G20 nations, which accounts for about 85% of the global economy, comprise the world’s 19 leading national economies (Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Republic of Korea, Turkey, US, UK) and the European Union.

The threat of a currency war and trade imbalances look set to be hot topics and the former remains a major issue as China continues to be under pressure to let its currency, the yuan, appreciate in order to correct trade imbalances.

The US has previously expressed dissatisfaction that China is keeping the value of the yuan low to help its exporters at the expense of overseas competitors.

Trade groups have argued that the yuan, also referred to as the renminbi, is kept up to 40% below what its value should be against the US dollar.

The US wants the G20 group of nations to agree to curtail “excessive imbalances” in world trade as a way of forcing China to re-evaluate its currency.

Britain also argues that the massive foreign currency reserves China has built up threaten the global economy.

In the meantime, at a press conference ahead of the summit, Brazil’s Finance Minister Guido Mantega criticised the US Federal Reserve’s latest round of quantitative easing.

This move has been widely criticised by several other nations, including Germany, China and South Africa.

Germany described the US monetary policy as “clueless” and said they would create “extra problems for the world”, while Brazil said the fresh round of stimulus would not boost production or create jobs in the US, but would instead drive money into countries with higher interest rates and cause inflation.

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