G-20 Agrees on Yardsticks for Imbalances as U.S. Seeks Leverage on Yuan

Group of 20 finance officials agreed to closer monitoring of global economic imbalances, in a step toward smoothing the trade and investment distortions that plunged the world into crisis.

Yardsticks such as the current account and public and private debt will make up a scoreboard that, while not binding, may give the U.S. and Europe leverage to push for an appreciation of China’s currency.

With the world recovery entering a second year, yesterday’s G-20 sparring match over early warning indicators reflected the determination of emerging countries to challenge the West’s formula for managing the international economy.

“It wasn’t easy, there were obviously diverging interests,” French Finance Minister Christine Lagarde told reporters after chairing the Paris meeting. The goal is “to test economic policies and determine to what extent they are favorable for all countries together and not just the basis of domestic economic policy.”

China will remain the world’s fastest-growing major economy in 2011, with a 9.6 percent expansion, the International Monetary Fund predicts. The Washington-based lender sees 3 percent growth in the U.S. and 1.5 percent in the 17-nation euro area.

‘Strengthening’ Recovery

“The global recovery is strengthening but is still uneven and downside risks remain,” the G-20 finance ministers and central bankers, representing 80 percent of world output, said in a statement. “While most advanced economies are seeing modest growth and persisting high unemployment, emerging economies are experiencing more robust growth, some with signs of overheating.”

On the eve of the meeting, China sought to ease the Beijing-Washington tension by raising bank-reserve requirements for the eighth time in a year and indicating that it will fight domestic inflation by extending a four-month-old cycle of interest-rate increases.

Higher reserve standards are not “the only method that we’ll use to battle inflation, it’s about using all means including rates and currency,” People’s Bank of China Governor Zhou Xiaochuan said in an interview in Paris on Feb. 18. “One method doesn’t exclude the other.”

The yuan’s advance to 6.5732 per dollar on Feb. 18, the highest since late 1993, left U.S. and European policy makers calling for further gains to spur Chinese imports of western goods.