UPDATE 1-BoE's King urges G20 cooperation on imbalances

Published 11/10/2010, 09:04 AM
Updated 11/10/2010, 09:08 AM

(Adds details, quotes)

LONDON, Nov 10 (Reuters) - The world's leading economies must this weekend agree on a way to redress current account imbalances and stop bickering about individual countries' policy choices, Bank of England Governor Mervyn King said on Wednesday.

Leaders from the Group of 20 advanced and emerging economies will this weekend try to hammer out an agreement about the best way to promote stability in the global economy.

Some countries have criticised the United States for embarking on a second wave of quantitative easing, a move they say creates problems by weakening the dollar, while the U.S. has kept up a barrage of criticism against China's fixed currency.

King urged leaders to focus on the broader aim of agreeing on a way to rebalance their economies.

"It is very important that the fundamental point that is recognised at the weekend -- not decisions on instruments or exchange rates or targets for current account balances in terms of a number -- but that there is a path along which the current account imbalances unwind," he said.

"I hope that at the G20 meeting this weekend that we will get a co-operative message rather than some of those that we have been getting in the last few days and weeks."

A U.S. proposal to set a numerical target for nations' current account balances failed to garner much support at last month's meeting of G20 finance ministers in South Korea.

King said there needed to be a genuine recognition that unwinding current account imbalances was in the collective interest.

"Unless we recognize that and reach agreement on what that path is going to look like -- not numerically this weekend but over the next 6-9 months -- then we will face a situation where more and more countries will resort to policy instruments that in the end will be damaging to everyone. It is that serious."

King said criticism of the Fed's decision to expand its quantitative easing programme was ill-judged. Some countries have accused the Fed of exacerbating imbalances in capital flows with its latest round of easing as investors pour their money into emerging markets offering higher yields.

"I think it's rather baffling some of the comments that have been made, and it's rather difficult to attach much economic sense to it," King said.

"The concern that the United States has expressed, with some justification, is that they have never intervened to prevent the exchange rate responding the way the markets thought was appropriate given its domestic policy.

"There's a world of difference between deliberately intervening to lower or raise the exchange rate, or setting domestic policy and then letting the market determine the exchange rate," he added. (Reporting by Anna Yukhananov, Christina Fincher and Peter Griffiths; Editing by Hugh Lawson)

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