But there are other equally serious challenges before G-20, the premier economic-decision making forum, including a faltering global recovery from the Great Recession, the European debt crisis, Moving toward a balanced pattern of global growth, and Repairing and reform of the international financial system on which advanced economies are yet to move in concert. Meanwhile, China's central bank announcement on Saturday, was welcomed by President Obama as a “constructive move“ but US officials warily waited to see “how far and how fast” Beijing would let its currency appreciate..

For long, including at the recent US-China strategic dialogue, Beijing had resisted calls for currency appreciation contending it was a matter of national decision-making. Pressures had been building up in US Congress to charge China with currency manipulation and enforce sanctions. The general view was that China's exchange rate was designed to give itself unfair trade advantage over other nations. USA for over five years had run substantial trade deficits with China whose exchange rate was also viewed as one of the factors for global imbalances. EU shared this view though countries like Germany enjoy trade surpluses.

Another major concern for the Obama Administration is fiscal retrenchment across some major economies with a relatively faster exit from the stimulus measures, especially in the wake of the European debt crisis. This, it feels, could adversely impact on economic recovery worldwide. President Obama said in a letter to G-20 leaders before assembling in Toronto that “the highest priority must be to support and strengthen recovery”. Unlike Summits (Washington, London and Pittsburgh), where global co-ordination to reverse economic downturn and reform financial system was the uniting theme, the Toronto Summit faces “renewed challenge” to the global economy, as the President put it.

The President said that while committing themselves to restore sustainable public finances in the medium term, the leaders should reaffirm their “unity of purpose” and provide necessary support to keep economic growth strong and ensure that recovery created good jobs needed. He noted “significant weaknesses' across G-20 economies and listed weak private sector demand, continued heavy reliance by some countries (China, Germany etc) with already large external surpluses.

China's reserves stood at 2.4 trillion dollars in 2009 and could exceed 2.7 trillion dollars by end-2010, according to World Bank, which has projected growth at 9.5 per cent this year and moderating to 8.5 per cent in 2011. But China is the largest creditor to USA at present having invested over 900 billion dollars in Treasury securities till April thus helping to balance US current account deficits. China has begun recovery in its export growth while imports have also risen narrowing its trade surplus, a reason it cited against being blamed for global imbalances.

Beijing maintains that rather than look for “red herrings” like exchange rate, what G-20 ought to do is to focus on overhaul of the financial system. The People's Bank of China statement on reform of renminbi was made because it felt “the time was ripe” to proceed with it and increase the Chinese currency's exchange rate flexibility given the strong economic rebound at home and the gradual recovery abroad. The China Daily said. By allowing the exchange rate to reflect market supply and demand with reference to a basket of currencies, Chinese policymakers have sent a clear signal of shift from its heavy dependence on exports for growth and on pursuing consumer-led growth. All indications from China are that the authorities would make the renminbi more flexible in a ”controlled and gradual manner”.

The debt crisis in southern Europe and the loss of investor appetite has driven the euro down to near parity with the dollar after a few years. With prospects of its strengthening in near future looking dim and fiscal tightening leading to depressed domestic demand,, new OECD estimates suggest that major euro-zone countries would produce eurozone surpluses of at least $300 billion annually within the next few years. This would mean a serious constraint to implementing the growth rebalancing strategy of G-20, which would be a major item of review at the Toronto Summit.

G-20 had agreed at the Pittsburgh Summit on a Mutual Assessment of progress toward a strong, sustainable and balanced growth of the world economy. Recent global trends outside Asia point to subdued and uneven recovery of the world economy and IMF would make a further revision of its estimates in July. In a report to G-20, IMF says in most of advanced economies, fiscal tightening would be required in 2011.

Fiscal measures should be complemented by steps to reduce the fragility of the banking systems and by growth-enhancing structural reforms, China had joined other G-20 nations last year in pledging to help “rebalance” the global economy. Economists all over have welcomed the latest Chinese announcement on its exchange rate reform, which is essentially getting back to the pre-crisis position when the renminbi had been allowed to fluctuate within a narrow margin. China justified its stable exchange rate policy as an insurance to safeguard its exports during the global crisis.

Far from any slowdown though Beijing has not added new stimulus to its massive 2008 package, China's economy was growing in double digit in the first half of 2010 and was perceived to be in danger of overheating with a rise in consumer price inflation. Allowing the yuan to appreciate should slow inflation by making imports cheaper for the Chinese consumer and also help macro-economic situation, economists point out. Whether “symbolic or a true shift“, said Eswar Prasad, a Cornell University economist who follows China closely, “it signals recognition by Chinese officials that a more flexible exchange rate is in China's own interest.” (IPA Service)