Of late,a hope has been gaining ground in recent days regarding the sustainability of the global economic recovery. This after a storm in the form of Global Financial Crisis,that emanated from the West in the late 2008,hit the developed and developing world drastically.It would not be extrapolation,however,to say that it affected the developing world more drastically than the developed world.However,the orchestrated actions that followed,set a precedence for the times to come.With the help of coordinated actions by the governments across the globe,the world was able to stave off what appeared imminent-a meltdown of the world economic order.
However,as has always been the case,events of the past pave the way for the events of the future,the same was true of this case as well.In a bid to boost the economic activity during the slump,governments resorted to varying measures.These were intended to provide stimulus to the economy.Now that the storm appears to have settled,it is becoming increasingly apparent that the crisis had led to increased distortions in the global system.The US which was already running huge trade deficits,now finds itself in a deeper deficit.And export driven economies such as China and Germany are now sitting on unprecedented levels of cash and forex reserves driven primarily by their trade surpluses.As a result,the gap between the trade deficit and trade surplus economies has widened further.
This has led to exacerbation of the already acrimonious relations between these countries which now threatens to kill an infant recovery.At the heart of the heated discussion is a newly coined term: "Currency Wars".The term,which has gained immense fancy within media circles,is a reflection of yet another challenge that the flagging World Economy faces. And at the centre of an unfolding drama are the two global economic powerhouses,China and the US. The anaemic recovery in the US is attracting public ires which is increasingly evident in the distrust people are expressing in their administration.For the Americans,this recovery is more of a farce and is far from reality,for the simple reason that this recovery is unable to provide them jobs and one in every 10 Americans is still seeking a job.The scenario in the far East(read China) is altogether different.The Chinese economy on the other hand is in Superheated mode(if one may say so).There are large number of jobs being created in a buoyant economy,the Asset prices are inflating,Manufacturing and Services sector is achieving higher Scalability.These are in stark contrast to what is happening in the US and the rest of the developed world,where people are losing jobs,federal governments are running Giant deficits,the manufacturing activity has almost reached stagnation,asset prices are going nowhere and the likes.
This has led to contention between the two.And Currency has emerged as a new tool to control the dynamics of Global trade.China is accused of keeping its currency artificially low by not letting it appreciate and thereby giving undue advantage to its exports at the cost of growth in the West.This,the West accuses,has led to the their export being relatively less competitive vis-a-vis China.China(and much of the developing world),on the other hand,accuses the US of printing billions of dollars in cash to weaken its own currency against other currencies,to make its export cheaper.A microscopic look at the scenario seem to suggest that both of them are justified in their own arguments.But at the same time it needs to be understood that it is not a case of Either-Or.The deadlock is hurting the prospects of a full-fledged recovery and threatens to take the recovery off-track.Having seen the consequences of the Economic crisis,which dragged millions of people in the developing world back into the poverty,we cannot afford the recurrence of such a disaster.Therefore, it is highly obligatory on the part of the decision makers to make preemptive efforts at resolving the crisis.
The recently concluded G20 meet in South Korea was an attempt in this direction and towards averting a confrontation between the Developing and Developed world.And to everybody's expectation the leaders were clever enough(as has always been the case) to promise manipulation free trade regime across the world and to refrain from protectionist practices.However,history has it that such commitments(if at all they are any) are just acts of gimmick and it will take more than just courage to find a welfare solution.Every nation and its leadership is well aware of its obligations towards its citizens and therefore will continue to tread paths that may not necessarily concur with the interests of the world.