Stimulus plan raises tensions

G20 leaders gathered in Seoul to discuss rising tensions surrounding global fiscal and currency imbalances. The Federal Reserve’s recent decision to buy US$ 600 billion in Treasury bonds came in for particular criticism from Germany and other export-dependent countries that worry about a weaker dollar. Although the American president usually does not comment on the actions of the Fed, Barack Obama defended the central bank’s move, saying its intention was to help the American economy to grow, not to influence exchange rates.

Even the IMF now favours judicious limits on capital surges, if nothing else works. But some capital controls are more excusable than others. To help distinguish good controls from bad, some dos and don’ts endorsed by the G20 might help. Over time, regulation of the capital account might become as respectable as banking regulation.