Obama tells G20 dollar strength tied to US economy

President Barack Obama responded to widespread criticism that the United States is deliberately weakening the dollar while trying to swing the G20 spotlight back onto global imbalances as world leaders gathered in Seoul on Wednesday.

A draft statement cited by Dow Jones Newswires echoed an earlier finance ministers’ pledge to move toward more market-determined currency rates and appeared to offer no new proposals on how to ease tensions between struggling rich nations and rising economic powers such as China and Brazil.

Obama, facing widespread criticism of the Federal Reserve’s easy-money policy as he arrived for the two-day Group of 20 leaders summit, said a strong U.S. economy was vital to the global recovery.

“When all nations do their part — emerging no less than advanced, surplus no less than deficit — we all benefit from higher growth,” Obama said in a letter sent to G20 leaders on Tuesday.

The bridge-building came after a day of heated arguments as negotiators struggled to hammer out a statement that all G20 leaders could sign. Deep divisions have emerged over economic policy, particularly the U.S. Federal Reserve’s decision last week to spend another $600 billion to buy government bonds.

Critics say the Fed’s policy weakens the dollar to the detriment of other nations, and recent trade data showed both China and the United States benefited from currency moves.

Obama, however, argued, that the dollar’s strength ultimately depends upon the strength of the U.S. economy.

Deputies clutching mobile phones to their ears shuttled in and out as they tried to draft a final statement, to be released on Friday, but remained far apart on pivotal issues such as currencies.

“We had to open the door because the debate was so animated and the room was getting hot,” G20 spokesman Kim Yoon Kyung said, referring to day-long talks on Tuesday.

The Dow Jones report said that while an early draft repeated an initial pledge to “refrain from competitive devaluations,” it also included alternative language on avoiding “competitive undervaluation.”

An Indian official close to the negotiations said discussions on reducing current account imbalances were “picking up” after a rocky start.

Shares of Japanese banks jumped after a Financial Times report said new rules on higher capital requirements being discussed at the G20 would not be applied to most big Asian banks as they do not have global businesses.

“SHARED GROWTH” SLOGAN
The Group of 20 leaders had hoped this week’s gathering, the fifth since the financial crisis exploded in 2008, would mark a new era of global cooperation as South Korea printed banners proclaiming a slogan of “Shared Growth Beyond Crisis.”

But the unity forged in crisis has given way to diverging national policies that reflect a multilateral recovery from the recession, prompting critics to question the effectiveness of the G20 grouping itself.

In his letter, Obama sought to return the discussion to global imbalances and insisted that the United States was not the only country that must change its ways.

“Just as the United States must change, so too must those economies that have previously relied on exports to offset weaknesses in their own demand,” he wrote in a thinly-veiled reference to China.

While most major economies grapple with sub-par growth, leaving them reliant on exports, emerging powers such as China and Brazil have roared back to pre-recession strength.

China’s politically contentious trade surplus widened to $27.1 billion in October, more than economists had expected, according to trade figures released on Wednesday.

Despite near-record imports from China, the U.S. trade deficit narrowed more than anticipated by markets in September, to $44 billion, government data showed.

A Chinese official who has been helping draft the G20 communique said the leaders should not discuss the yuan or any other currency specifically. The Indian official also said the final statement would not single out any particular currency.

But the yuan rose to its highest level against the dollar since its revaluation in July 2005, after the People’s Bank of China fixed a record yuan mid-point.

Beijing typically loosens its tight grip on the yuan as a goodwill gesture ahead of political events that apply pressure on China for more yuan appreciation.