Brussels, 11/10/2010 (Agence Europe) - Disagreements on currency issues among major world economies dominated the annual summit of the International Monetary Fund (MF) in Washington at the weekend, but agreement was reached on reforming the way the IMF is run.
A few days after the monetary sabre-rattling between Europeans and the Chinese on the fringes of the EU-ASEM Summit (see EUROPE 10229), the United States expressed its discontent about the appreciation of the yuan (the Chinese currency), which it says is increasing far too slowly against the backdrop of the weight of the China in the real economy. The US accused Beijing of preventing its currency from rising by making selective purchases of huge amounts of foreign currency. The Chinese refused, echoing their refusal last week in Brussels. The Chinese accuse countries like the United States of pressurising emerging economies while running a very low interest rate policy and continuing with the exceptional crisis reduction measures.
The International Monetary and Financial Committee, the IMF's guidance body, pointed out in a final press release in Washington that 'tensions and vulnerabilities remain as a result of widening global imbalances, continued volatile capital flows, exchange rate movements and issues related to the supply and accumulation of official reserves.' It called on the IMF to carry out detailed study into better management of currency flows and to make proposals as necessary in 2011. The impact of any one country's economic policies on the rest of the world's economies will be examined in this connection.
Agreement seems to be emerging on changes to the way the IMF is governed, which might be announced at the G20 Summit in South Korea (Seoul) in November. Some 5% of voting rights would be transferred from over-represented developped countries to under-represented emerging economies. China would get a 6% share of the vote. Europeans are proposing to reduce the number of seats they hold on the IMF's board of managers by two to twenty-four. They suggest that decisions should be taken by a qualified majority vote of at least 60% of votes (at present an 85% majority vote is required). This would remove the United States' power of veto because with its 17.5% of the vote, it can at the moment veto any decisions it does not like.
The committee stated: 'We welcome the recent Basel agreement on a substantial improvement in the quality and quantity of bank capital together with the introduction of a global liquidity standard and a leverage ratio. We look forward to a full, timely and consistent implementation across jurisdictions, which will improve financial sector resilience.' (M.B. trans fl)