The G20 is designed to bring together the world’s twenty largest economies to create a collective vision for global financial policies and currency trading. Formed in reaction to the 1997 Asian financial crisis, the goal of the G20 is collaboration and arbitration towards a shared goal of economic stability. However, the diverse nature of global politics combined with the latest US quantitative easing initiative (QE2) is not necessarily sending a message of appeasement, rather current financial policies apparently seek to communicate individuality and division.
Nick Mellor, currency strategist at the Bank of New York, called the nominal value of currencies “ugly” and focuses on the question of which currency is “relatively ugliest” and the German finance minister described the US economy. As if in a ‘deep crisis’. Surrounded by these bold and dubious statements, currency traders cannot help but question whether the entire premise of the meeting is simply a facade meant to show an external solidarity that ultimately masks increased ubiquity and mistrust.
Historically, this supportive face has managed to implement some key macroeconomic policies that invite financial reform; from US fiscal expansion and the use of unconventional monetary policy initiatives to changes in financial regulations and the creation of the Financial Stability Board. Changes have been made as a result of previous meetings, this fact cannot be denied, but the scope of these changes and how much further the G20 can go can be questioned.
The G20 aims to ‘redouble its efforts in 2010 to help the world make a successful transition from global recovery to stronger, more sustainable and balanced growth’. However, the tone for these efforts was set long before the meeting with QE2, drawing the ire of other countries. The Federal Reserve’s decision to inject $600 billion into the US economy runs somewhat counter to other global financial strategies related to inflation. According to the Xinhua news agency, the Chinese trade surplus reached approximately $27.1 billion in October, this substantial increase compared to the previous months $16.9 billion may put pressure on the value of China’s currency. The surplus trade leads to lower inflation and the need for China to appreciate its currency faster against the dollar. This is made difficult by QE2 and the inflationary pressures associated with this financial decision made by the US. With two key financial economies already off to a shaky start even before the meeting begins, the sour financial tone is likely to be spread to the G20 and may well dilute any larger financial impact the conference might have expected.
If beauty is in the eyes of the beholder, the face of the G20 is open to opinion. Any method of creating sustainable financial growth on a united global front is to be applauded, particularly from a forex trading perspective. Yes, the face manages to refresh market confidence, but it must be talking. If the components that make up the G20 fail to collaborate and ‘talk the talk’, then confidence in currency trading will ‘go the way’. It only takes an economy in conflict to bring down the notion of solidarity, thus dashing all hopes of cementing global change and financial reform.
