SEOUL, South Korea — Tensions over currencies and trade gaps are simmering ahead of a summit of global leaders this week as America’s move to flood its sluggish economy with $600 billion of cash triggers alarm in capitals from Berlin to Beijing.
The Group of 20 major rich and developing nations has taken on the role of reforming the world economy in the wake of the 2008 financial crisis. Its leaders first met two years ago and have set out an ambitious agenda to ensure stable economic growth, strengthen financial supervision to prevent another meltdown and give developing countries more of a voice.
But discussions on achieving those goals at the summit Thursday and Friday in Seoul are being complicated by the Federal Reserve’s decision to buy $600 billion of Treasury bonds over the next eight months with the aim of lowering interest rates to spur growth and cut the high unemployment rate.
Export-reliant nations, many of them poor, fear the Fed move will drive more cash into their markets in search of higher returns, driving their currencies even higher and hurting manufacturers that provide jobs and security for fast-growing populations. At the same time, China has maintained tight control over its currency, the yuan, adding to criticism it is kept artificially low and gives Chinese exporters an unfair export advantage.
At the heart of the discussions is the recognition that a decades-long global economic order centered on the U.S. buying exports from the rest of the world and running huge trade deficits while countries such as China, Germany and Japan accumulate vast surpluses is no longer tenable in the aftermath of the crisis.
“The present world economy is unbalanced,” Paul Volcker, a top economic adviser to President Barack Obama and a former Fed chief, said in Seoul last week. “It’s unbalanced in a way that can’t persist if we are going to have a thriving global economy.”
The attempt to give the world economy an extreme makeover has gotten some of its momentum from the rise of countries such as India, China and Brazil to become economic and political giants in their own right. The G-20 meetings themselves are a sign of how much things have changed since the crisis. They symbolize the end of a system in place since the 1940s in which the world economy was managed largely by a handful of rich nations led by the United States, Europe and later Japan.
The forum, established in 1999, is a disparate combination of rich nations, developing economies, rising powers and consumers and producers of natural resources. The European Union is also a member. It took the financial crisis, however, to thrust the G-20 into a position of global leadership, supplanting the Group of Seven club of advanced nations.
Besides discussing currencies and reducing trade gaps, G-20 leaders are also likely to endorse proposals for beefing up supervision of large banks and other financial institutions. They are also widely expected to express support for a proposal to give developing countries more voting power at the International Monetary Fund and more seats on the board of the key global lender.