Major exporting countries such as China and Germany are complaining about the Federal Reserve's decision to buy more Treasury bonds to try to lower interest rates, spur growth and reduce high unemployment rate in the United States. They say the Fed's plans are driving down the dollar's value and giving U.S. goods an unfair competitive edge in world markets.
Smaller countries such as Thailand and Indonesia say they fear the Fed's action will send cash into their markets in search of higher returns. That risks raising their currency values, squeezing their exporters and inflating bubbles in stocks or other assets that could destabilize their financial systems.
As the Group of 20 major rich and developing nations prepare to meet in Seoul, President Barack Obama defended the Fed. He said the central bank was following its mandate to "grow our economy." Obama also took a veiled shot at China for keeping its own currency, the yuan, low to benefit Chinese exporters.
"We can't continue to sustain a situation in which some countries are maintaining massive surpluses, others massive deficits, and there never is the kind of adjustments with respect to currency that would lead to a more balanced growth pattern," Obama told reporters in India.
The Group of 20 major rich and developing nations has taken on the role of reforming the world economy in the wake of the 2008 financial crisis. Its leaders first met two years ago and have set out an ambitious agenda to ensure stable economic growth, strengthen financial supervision to prevent another meltdown and give developing countries more of a voice.
But discussions on achieving those goals at the summit Thursday and Friday in Seoul are being complicated by the furor over the Fed's decision to buy $600 billion in Treasury bonds over the next eight months to try to energize the U.S. economy.
At the heart of the discussions is the recognition that a decades-long global economic order centered on the U.S. buying exports from the rest of the world and running huge trade deficits while countries such as China, Germany and Japan accumulate vast surpluses is no longer tenable in the aftermath of the crisis.
"The present world economy is unbalanced," Paul Volcker, a top economic adviser to President Barack Obama and a former Fed chief, said in Seoul last week. "It's unbalanced in a way that can't persist if we are going to have a thriving global economy."
The attempt to give the world economy an extreme makeover has gotten some of its momentum from the rise of countries such as India, China and Brazil to become economic and political giants in their own right. The G-20 meetings themselves are a sign of how much things have changed since the crisis.