G-20 ministers reach compromise deal to correct economic flaws

• After two days of hard bargain by their finance ministers, major economies faced with uneven recovery and downside risks reached a text on guidelines for removal of structural flaws in the global economy.
• G20 finance ministers have reached a compromise deal to correct global economic imbalances and expressed concern over excessive commodity price volatility impacting the world food security, an issue pressed by India.
• The finance ministers and central bank chiefs, who could not reach a broad consensus on framing rules for current account deficit and real exchange rate and reserves, said "our aim is to agree, by our next meeting in April," on a set of indicative guidelines to ensure orderly economic growth.
• However, the document did not talk about an issue of much interest to India. New Delhi wanted that G20 should urge all jurisdictions to conclude Tax Information Exchange Agreements so that menace of black money in tax havens can be tackled.
• This issue seems to have been put on back seat as a lot of time was spent on reaching an agreement with China, which was opposed to inclusion of foreign exchange reserves and its exchange rate among the guidelines. China is sitting on a $ 2.8 trillion forex reserves and is accused by the US of manipulating its currency yuan.
• The ministers agreed on a plan to strengthen the international monetary system (IMS) with regard to disruptive capital flows and disorderly movement in exchange rates, a matter of great concern to India.
• The document also expressed its worries on the impact of rising oil prices which have exceeded $ 100 per barrel.

The communique instead said that indicative guidelines, without targets will be used to assess:

i) Public debt and fiscal deficit; private savings and private debt 

ii) external imbalances composed of trade balance and net investment income flows and transfers, taking into due consideration of exchange rate, fiscal, monetary and other policies.

In the financial sector, the ministers committed themselves to "regulating and oversight of the shadow banking system to efficiently address the risks, notably of arbitrage associated with the shadow banking."

The shadow banking system or the shadow financial system consists of non-depository banks and other financial entities (investment banks, hedge funds, and money market funds).