So how did that G-7 dinner go?

Remember that G-7 dinner that Chinese Finance Ministry officials were asked to attend? It took place over the weekend. Chris Giles and Andrew Balls report on the outcome in the Financial Times. First, the dinner:

China resisted pressure by industrialised countries to liberalise its currency regime at this weekend’s meetings of the International Monetary Fund and World Bank. Jin Renquin, China’s finance minister, and Zhou Xiaochuan, the central bank governor, attended a working dinner of the Group of Seven industrialised nations on Friday, but maintained China’s previous stance that it needed more time before it could consider introducing greater flexibility into its exchange rate. The dinner was the first time that China, now the world’s seventh-largest economy, had attended a G7 meeting. G7 countries praised the quality of debate and the openness of the Chinese officials, but little progress was made.

More interesting was the assessment at the end of the article on why there might not be any change in global macroeconomic imbalances anytime soon — although they may be unstatainable in the long run, the status quo ante brings short-run economic benefits and minimal political costs for the U.S., China, and the European Union:

Unlike in many previous meetings, the US did not blame low growth in Japan and Europe for its current account deficit and European delegates refrained from criticising irresponsible US economic policy. The rapid growth of the global economy in 2004 explains the improved mood in part. But it also reflects a growing understanding that global economic imbalances are the inevitable outcome of the combination of US efforts to boost domestic demand, Asian countries’ desires to boost currency reserves and persistently low domestic demand in the eurozone. “Policies to support an orderly resolution of global imbalances are a shared responsibility”, the International Monetary and Financial Committee concluded. What was left unsaid was that the current economic imbalances are boosting economic performance of most large economies and there is little appetite for the measures that could reduce them, such as tighter fiscal or monetary policy to reduce demand in the US or an appreciation of Asian currencies against the US dollar. The consequence is likely to be that the US current account deficit will grow even larger as will foreign holdings of US dollar assets. Few economists think these trends are sustainable in the longer term. They warn that the management of the global economy with ever larger imbalances and a large proportion of the global economy fixed to the dollar is likely to create a much less benign outlook for future IMF and World Bank meetings.

This post from a few weeks ago is also worth checking out — both on the global imbalances and China’s exchange rate policies. UPDATE: The Economist has more on the G-7 meeting. Money paragraph:

The G7 once held great sway over exchange rates. When it met, in a previous incarnation, in New York in September 1985, it engineered a near-30% decline in the dollar. When it reconvened a year and a half later in Paris, it promptly halted that decline. By breaking bread with the Chinese on Friday, the current G7 is tacitly admitting that it can no longer achieve very much without them.