Currency wars come to Moscow as G20 spars over yen

The United States, G20 delegation sources said, was blocking attempts to agree on a commitment to cut borrowing to replace a collective pledge to halve budget deficits agreed at the G20 Toronto summit in 2010. The so-called Toronto goal expires this year.

The euro zone's largest economy, Germany, and the European Central Bank, want a new borrowing pledge - in line with their own tough medicine for the currency bloc's ailing periphery.

BACK TO THE '80S

The maneouvring on currencies is reminiscent of the 1980s, when the Plaza and Louvre accords sought to manage first the excessive strengthening, and then weakening, of the U.S. dollar.

But, with the collapse of communism in eastern Europe and China's adoption of its own brand of capitalism, the world has changed.

Emerging markets, as exporters and reserve holders, now demand a greater say in global financial management.

One senior G20 source said late on Thursday that there would be no separate statement on currencies. A passage would be inserted into the main communique, but it would not repeat the G7 line that "we will not target exchange rates".

This, the source said, would not be acceptable to China - which is now the world's second-largest economy and holds much of its $3.3 trillion in foreign reserves in U.S. Treasury bonds.

DEFLATION, REFLATION

Japan's embrace of 'Abenomics' entails a huge round of fiscal and monetary expansion aimed at raising the inflation rate to 2 percent.

The yen has fallen by around 20 percent since November, triggering a rally in Japanese stocks that, the government hopes, will kick-start growth by encouraging savers to spend and companies to invest.

With the United States, Britain and euro zone all running ultra-loose monetary policies, some emerging market exporters have sounded the alarm over 'currency wars' that they say will devalue their foreign reserves and hit their competitiveness.

... contd.

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