by Calculated Risk on 10/22/2010 08:37:00 AM

From a letter .S. Treasury Secretary Timothy Geithner sent to his G-20 counterparts:

“First, G-20 countries should commit to undertake policies consistent with reducing external imbalances below a specified share of GDP over the next few years, recognizing that some exceptions may be required for countries that are structurally large exporters of raw materials. This means that G-20 countries running persistent deficits should boost national savings by adopting credible medium-term fiscal targets consistent with sustainable debt levels and by strengthening export performance.

Conversely, G-20 countries with persistent surpluses should undertake structural, fiscal and exchange rate policies to boost domestic sources of growth and support global demand. Since our current account balances depend on our own policy choices as well as on the policies pursued by other G-20 countries, these commitments require a cooperative effort.

“Second, to facilitate the orderly rebalancing of global demand, G-20 countries should commit to refrain from exchange rate policies designed to achieve competitive advantage by either weakening their currency or preventing the appreciation of an undervalued currency.

G-20 emerging market countries with significantly undervalued currencies and adequate precautionary reserves need to allow their exchange rates to adjust fully over time to levels consistent with economic fundamentals. G-20 advanced countries will work to ensure against excessive volatility and disorderly movement in exchange rates.

Together these actions should reduce the risk of excessive volatility in capital flows for emerging economies that have flexible exchange rates.

And the proposal has plenty of opposition - no surprise - from the WSJ: G-20 Proposal on Curbing Trade Imbalances Faces Opposition

Japan and Germany, whose export-led growth models have built up major trade surpluses, are opposing such a solution at the meeting of G-20 finance ministers and central bankers in Gyeongju.

"The idea of setting numerical targets is unrealistic," Japanese Finance Minister Yoshihiko Noda said Friday.