Scenarios: How the world can tackle skewed growth and FX

SEOUL (BestGrowthStock) – Finance leaders are trying to reconcile their differences over deep imbalances in the global economy and reduce the risk of a currency war.

Talks at the meeting of Group of 20 finance ministers and central bankers this week in South Korea and of their leaders in November should reveal the struggle among these diverse economies to find common ground on policies and currencies.

Below are possible ways forward for addressing uneven global growth and currency tensions, evident in China’s export might and its yuan currency, and the declining dollar in face of slow growth and high debts of many rich economies.

GIVE IMF AN ENHANCED ROLE AND REFORM IT

PROBABILITY: High.

This is the route that countries agreed to try at their meetings in Washington earlier in October. A lot of work remains on details and to make any agreement work.

The International Monetary Fund’s 187-member countries have agreed that urgent action is needed to give the IMF a more assertive role in highlighting the economic policies of countries that could cause currency problems, and that toughened scrutiny of rich countries is a priority.

Dominique Strauss-Kahn, the IMF’s managing director, has proposed drawing up “spill-over reports” on how the economic policies of the world’s five largest economies — the United States, China, the euro zone, Japan and the United Kingdom — affect each other.

The reports would build on existing IMF powers, known as Article IV annual reviews, where the IMF examines the economic policies of all its 187 members and makes recommendations. But the IMF has struggled to get governments to heed its calls for tough reforms.

If toughened review powers can be twinned with a giving a bigger voice to developing countries at the IMF, which traditionally is dominated by the West, the proposal may gain momentum. With debate over currencies and current account balances heating up, it is likely any say on IMF reform will be left to the G20 leaders at next month’s summit in South Korea.

Similar approaches to build on the Article IV reviews have failed twice in the past. China balks at calls for reform of its currency system. In the past it has even blocked publication of its IMF review. European countries have also ignored Fund suggestions that they undertake politically sensitive reforms, such as to their labor markets.

Hence there is some skepticism why this time should be different.

USE THE G20 TO THRASH OUT CURRENCY DIFFERENCES

PROBABILITY: France will try it next year, big challenge.

The Group of 20, representing the leading developed and emerging economies, last year became the main forum for discussing the global economy, overtaking the G7.

G20 finance ministers and central bank governors meet in South Korea on October 22-23 before a leaders’ summit in Seoul on November 11-12. The G20 traditionally issues a communiqu