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Currency tensions mount Currency tensions are in the spotlight today as G20 finance officials meet in Gyeongju, South Korea. U.S. Treasury Secretary Timothy Geithner is trying to win support for his bid to set targets for current account balances, but some officials are resisting such a push.
Mr. Geithner wants countries to pledge to hold their balances, surpluses or deficits, to 4 per cent of GDP, a move backed today by Canada's Jim Flaherty. That would mean countries like China, under intense pressure to allow its yuan to appreciate, would have to let their currencies rise. Of course, there have also been concerns over the general weakness of the U.S. dollar as markets anticipate new measures from the Federal Reserve known as quantitative easing, which economists have dubbed QE2.
Other officials, though, appeared cool to Mr. Geithner's suggestion, notably major exporters like Germany and Japan.
The current account is the broadest measure of trade, and officials are grappling with severe global imbalances. The idea is that countries in deficit would increase savings, while those in surplus focus on boosting domestic spending.
Here's one take on Mr. Geithner's letter to his colleagues from Scotia Capital economists Derek Holt and Gorica Djeric:
"Do global current account targets make sense? Not one bit in our view. The global order has to tolerate considerable latitude when it comes to the various stages of development of global economies. Current account deficits and capital account surpluses are often run by countries with more attractive growth prospects that require net foreign capital inflows to fund them. By contrast, high saving economies often run current account surpluses and capital account deficits (net outflows) as they export capital to markets with higher investment returns or funding needs.
"Of course, what also matters is why a country is running current account deficits or surpluses, and in this regard, it is as difficult to justify years of excess consumption in the U.S. that drove current account deficits through high imports as it is to justify all of China's current account surpluses that partly reflect under development of its domestic economy relative to years of reliance upon growth through manufactured exports."
Canada in tougher spot The Bank of Canada is hoping exports and business investment will help take the place of an expected decline in consumer spending and housing, but the trade part of that may be "wishful thinking," CIBC World Markets says.
In a report today, chief economist Avery Shenfeld noted that Bank of Canada Governor Mark Carney doesn't want to see a fresh round of consumer borrowing, given his warnings over bloated debt levels. As it was, the borrowing binge of late was "a necessary evil" to help fill the gap when trade collapsed in the recession.
Mr. Carney, said Mr. Shenfeld, can't "pick his poison," and so is in a tougher spot, given the weakened U.S. dollar and intervention in currency markets and other measures taken by some other countries.
"The G20 meetings ... are unlikely to see peace break out in the ongoing currency war," Mr. Shenfeld wrote. "If Canada is going to behave like a boy scout and eschew intervention, while others promote devaluation through quantitative easing (the U.S.), central bank intervention (China and Japan) or restraints on capital flows (Brazil and Thailand), it wil be stuck with a strong loonie that will impede an export-led expansion. Keeping interest rates tame enough to avoid a soaring C$ as the U.S. holds its rates frozen at zero could ultimately set off a renewed climb in household debt, as borrowers again take advantage of low rates."
Jim Shaw to step down Jim Shaw, the colourful western cable king, is handing over the reins of Shaw Communications Inc. to his brother Bradley, who will take over as CEO at the company's annual meeting Jan. 13.
Jim Shaw, CEO of the Calgary-based company since 1998, sparked the move and recommended his brother as his successor, the company said in a statement. "I believe it is time to pass the torch to a new leader who will take us to the next level," Jim Shaw said.
The announcement came just hours before an expected ruling by the CRTC on Shaw's $2-billion deal for CanWest's TV assets.
- Jim Shaw stepping down as CEO
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No fear from inflation Inflation is still tame in Canada, giving Bank of Canada Governor Mark Carney more than enough leeway to hold down interest rates for as long as he deems necessary.
Canada's annual inflation rate climbed in September to 1.9 per cent from 1.7 per cent a month earlier, Statistics Canada said today. But the so-called core rate, which strips out volatile items from the basket and is the measure that guides the central bank, dipped to 1.5 per cent from 1.6 per cent.
Earlier this week, Mr. Carney held his benchmark overnight rate at 1 per cent and released a new, gloomier economic forecast. Economists now believe he won't raise rates again until well into next year, despite the fact he has hiked his key rate three times since the recession's end.
The Bank of Canada will remain focused on disinflationary pressures stemming from a sharp slowdown in consumer spending and housing, in addition to the high Canadian dollar," said Toronto-Dominion Bank economist Diana Petramala. "All said, inflationary pressures are expected to remain rather tame in the coming year."
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- 'Dirty oil' takes back seat to U.S. oil thirst
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