G20 may reject US proposal to cap current account imbalances

The two-day meeting of G20 finance ministers and central bank heads started off in Gyeongju, in South Korea, with Japan and most developing countries looked set to reject a US proposal for capping current account imbalances in order to reduce currency and trade frictions.

The US has proposed an across-the-board cap of four per cent of gross national product (GDP) on current account surpluses and deficits for all countries.

While China, Russia, Germany and Saudi Arabia are all running trade surpluses above the proposed four per cent threshold, the proposal seems to be mainly aimed at China's bulging trade surplus, especially with the United States.

Current account imbalances currently range from Turkey's five per deficit to Saudi Arabia's 7 per cent surplus.

United States is running a current account deficit of around three per cent of GDP, almost on a level with India in percentage terms, although much higher in quantitative terms.

India is nursing a 3-per cent current account deficit, which in June shot up to a record $13.7 billion, the worst in three decades.