G20

US Treasury Secretary Timothy Geithner told a G20 meeting that tightly controlled exchange rate regimes are the main problem in the international monetary system while the solution to it is rather simple.

Addressing the attendants of the Chinese hosts of the seminar of the Group of 20 wealthy and developing economies Geithner noted that countries should have flexible exchange rates and permit free flows of capital to be major players in the global currency order.

According to French Finance Minister Chrisitine Lagarde this time G20 meeting will be focused on discussing of global economic imbalances and food inflation. It is the first meeting of G20 this year which will behold today in Paris and last for 2 days. The previous summit was held last November in Seoul and addressed currency and trade imbalances.

Gold dropped over 1% on stronger dollar as well as talk about euro zone sovereign debt at the Seoul G20 summit and speculation China may again hike interest rates to wrestle inflation.

Spot gold lost as much as 1.7 percent to $1,385.77 an ounce, and recovered slightly to $1,389.17 by 0401 GMT.

"Everyone is watching the G20, and gold is chasing the dollar," said Ronald Leung, a physical dealer at Lee Cheong Gold Dealers in Hong Kong, "We can see some consolidation from here, in a range of $40 dollars below $1,420."

The Japanese yen showed choppy trading during early Asian deals on Thursday as investors stay cautious ahead of the Group of 20 nations summit in Korea.

G-20 leaders meet in Seoul today and are expected to keep discussing the so-called 'currency wars', where nations compete to devalue their exchange rate in a bid to stoke exports.

The yen is currently worth 113.40 against the euro, 132.79 against the pound and 84.83 against the franc.
 

During the upcoming event at Gyeongju, South Korea, the Group of 20 leaders will be considering the issue of a global "currency war," being pressed to come to a consensus as soon as possible. The truce in the currency war is needed to calm down foreign-exchange markets, still any certain decisions will be left to the leaders of the big industrial and developing countries, who meet in Seoul next month.

On Thursday world leaders expressed their common wish to secure the economic recovery but they didn’t come to any unanimous conclusion disagreeing on how to best reach the global stability. Officials who came for the Toronto G20 summit tried to downplay differences between the United States and Europe over how quickly to shift from crisis-fighting mode to budgetary belt-tightening.

"That's the delicate balance that we need to try to strike this weekend," Canadian Finance Minister Jim Flaherty said.

British bankers face a sharp cut in bonus payments this Christmas following the introduction by the government Wednesday of a 50-per cent windfall tax on the controversial pay-outs. The measure, revealed in a pre-election budget by Alistair Darling, Chancellor of the Exchequer, coincides with an angry public debate about the "excesses of the bonus culture" exposed by the banking crisis.

 As the Group of 20 leaders confirmed their intention to keep supporting the world economy thus strengthening investors’ desire for risk the US stock rally send the Dow industrials to a 13-month high on Monday.

Meantime, the US dollar dropped to a 15-month low, bolstering commodity prices and materials stocks. Freeport MacMoRan Copper & Gold Inc shares shot up 4.6 percent to $83.20 and the S&P materials sector index gained 3.2 percent.

 Robert Zoellick, World Bank President, warned the United States that the dollar’s position as a reserve currency should not be taken for granted as there are other options emerging on the world scene. Zoellick said global economic forces were shifting and it was time now to prepare for the fact that growth will come from multiple sources.

"The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency," he said. "Looking forward, there will increasingly be other options."