G20 summit agrees to reform IMF

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US Treasury Secretary Timothy Geithner (second left) leaves after a press conference in Gyeongji
Image caption,
The US will still retain its veto on key decisions at the IMF

Finance ministers from the G20 leading economies have agreed reforms of the International Monetary Fund, giving major developing nations more of a say.

At a meeting in South Korea, they agreed a shift of about 6% of the votes in the IMF towards some of the fast-growing developing countries.

Those nations will also have more seats on the IMF's Board, while Western Europe will lose two seats.

But the US will retain the veto it has over key decisions.

Such decisions require an 85% vote - Washington holds 17% under the IMF's weighted voting system.

The ministers also agreed to refrain from competitive devaluations of their currencies and move towards more market-determined currency systems.

'Currency manipulation'

The talks in the city of Gyeongji come against a background of strains in financial markets which some have called a currency war.

Much of the tension in the currency market is being blamed on the US and China, although it is not clear that either country will be restrained by the latest agreement.

The pressure has been on China to end its policy of holding the yuan down to maintain its competitiveness.

There was, however, no timetable for change in the devaluations agreement, so Beijing has kept to its long-held position that it will reform its currency policy gradually.

In the US, low interest rates and other central bank policies have led many investors to seek higher returns in developing countries, which tends to push their currencies higher, undermining competitiveness.

This is partly a result of policies in the US which mean investors are seeking higher returns elsewhere. US officials would argue the weak dollar is not the result of a deliberate devaluation, but rather a side effect of policies aimed at stimulating the domestic US economy.

It is possible that there will be more dollar weakness: One of the policies behind it - the Federal Reserve boosting the US money supply - might be extended in the next few weeks.

German Economy Minster Rainer Bruederle suggested that US policies, if not reversed, amount indirectly to currency manipulation - an accusation more often levelled at China.

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