Leaders Butt Heads Over Quantitative Easing at G20

Indian Rupees

Developed and emerging countries are butting heads at the G20 summit over the issue of tapering quantitative easing, Reuters reports. Many developing countries, such as India and China, have resounded calls for the United States to be mindful of the effect of its monetary policy on the rest of the world. In the wake of declining currency values in emerging economies, most notably the recent tanking of the Indian Rupee, fears have risen over whether an economic crisis comparable to the Asian crisis of the late 1990s could be triggered.

The first step that the so-called BRICS countries have taken is the announcement of a $100 billion fund to stabilize currency rates. However, some analysts are concerned that the fund will be too little, too late, as it will take some time for the fund to be fully functional. In addition, the $100 billion figure could very well be too little were a major run-in on one of the contributors’ currencies to occur.

The American response so far has been subdued, calling for developing economies to improve their own structures if they wish their currencies to maintain value. While representatives of emerging economies say that internal soundness is of vital importance, they claim that a sudden tapering of quantitative easing would be a failure on the part of the U.S. to live up to its global responsibilities. Exactly what the U.S. is expected to do as a global economic recovery remains very tentative is still uncertain.

China has maintained that, despite its concern over currency fluctuations in the region, its own economy will remain solid moving forward even in the face of uncertain U.S. monetary policy. Zhou Xiaochuan, the chief of China’s central bank, claimed that, “China has enough counter-measures and has made some preparations from the beginning,” even though he still expressed fears that currency shocks of other, less prepared nations could adversely impact China’s economy.

Despite Zhou’s words, China would certainly appear to be concerned about the impact of tapering, having contributed $41 billion to the BRICS currency stabilization fund and having earlier made deals with other Asian nations to establish lines of protection from currency fluctuations. Another hot topic issue at the summit is debt among member countries, which has soared due to increased borrowing during the economic contraction.

Although Stephen Harper and Shinzo Abe have both outlined measures to corral their respective country’s financial imbalances, Vladimir Putin has expressed concern that the trade off between taking on debt and trying to maintain healthy economic growth may have been exploited too much. Even though most hope for a rosy G20 meeting had disappeared after tension brewed over a potential U.S. military response in Syria, it has turned out that contention over other economic issues has plagued the summit as well.

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