November 05, 2010 12:22
The U.S. dollar is plummeting further after the U.S. government announced it is pumping US$600 billion of new money into the economy. A weak dollar makes European, Japanese and Korean exports more expensive to buy in the U.S. market as their currencies strengthen against the greenback. As a result, there are growing concerns that the decision breaches a truce in the currency war reached at the G20 Finance Ministers and Central Bank Governors Meeting in Gyeongju last month and threatens to turn the G20 Summit in Seoul next week into a currency battlefield.
Reuters said Thursday that concerns are rising over quantitative easing in the U.S. and that this will make it harder to reach solutions at the G20 Summit in Seoul next week.
But Federal Reserve Chairman Ben Bernanke got permission for the economic stimulus plan from the G20 during the Gyeongju meeting. Bernanke "explained that additional stimulus measures are necessary, saying a U.S. economic recovery helps not only the global economy but also emerging countries," said an official at the G20 Summit preparation committee. "Regarding concerns over a possible fallout, he promised to take caution in proceeding with the plan."
At the Gyeongju meeting, G20 member countries agreed that the U.S. needs to take pump-priming measures, he added. The Korean government therefore does not believe a destructive currency debate will erupt during the G20 Summit.
The Korean government, meanwhile, is seeking to ensure that the currency truce can be negotiated in greater detail at the summit. Finance Minister Yoon Jeung-hyun is attending the APEC finance chiefs' meeting in Kyoto, Japan starting Friday and will fine-tune major G20 agenda items including the currency issue, support for developing countries and the creation of a global financial safety net.
But if the U.S. stimulus measure delivers a strong-than-expected impact on the currencies of other countries, there are concerns that the move could trigger a backlash from Europe, Japan, China and other countries during the summit.
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