Currency Wars

The G-20 ministerial meeting wrapped up on Saturday, and currency issues were central to the agenda. For the first time, officials, including U.S. Treasury Secretary Tim Geithner, jointly weighed in on the ongoing debate over exchange-rate policies. The group said that it would “move towards more market-determined exchange-rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies.” In the past, the G-20 has withheld joint comment on the issue because it did not want to anger China, the target of much exchange-rate-fixing criticism.

In his speech to the group, which was preparing for main event, the G-20 Summit in Seoul on November 11 –12, Secretary Geithner led off with a reference to the economic crisis, but quickly turned to trade imbalances. He pointedly noted that “An important part of [the] transition [to sustainable and balanced growth] is a gradual appreciation of emerging market currencies relative to the major currencies as a group.” In a previously unscheduled visit, the treasury secretary also had a face-to-face with China’s Vice Premier Wang Qishan on Saturday.

Here at home last week, the administration was busy hosting a strategic dialogue with Pakistan and announcing a new $2 billion aid package for Pakistan’s military. But the same day the package was announced, Washington said that it was cutting off aid to Pakistani army units that have reportedly killed unarmed prisoners. State Department spokesman PJ Crowley wasn’t able to say all that much on the subject, but he did note that the amount of units involved is “a relatively small number.” Pakistan’s foreign minister said that an investigation into the matter had been ordered and “that there will be zero tolerance against human rights violations.”

In Afghanistan, General David Petraeus said that the now-month-old ramped-up counterinsurgency effort in areas west of Kandahar is progressing “more rapidly than was anticipated” and that the operation is in its “final stages.” Despite the good news from Petraeus, the outgoing Marine Corps commandant, James Conway, doesn't think the military is going to meet the administration’s July 2011 deadline to begin troop drawdowns in the south of the country. Though he said the stress should not be on the ticking clock, as “counterinsurgencies just take time.”

And U.S. special envoy Richard Holbrooke is stressing once again that talks between the Karzai government in Afghanistan and the Taliban are not formal peace negotiations, even though the media has painted them that way. One of the main roadblocks to any kind of formal talks is the lack of a defined leadership structure within the Taliban. As Holbrooke put it, “There's no Ho Chi Minh. There's no Slobodan Milosevic. There's no Palestinian authority.” Instead, there is a clump of disparate groups roughly called “the enemy,” including al-Qaeda, “with which there's no possibility of any discussion at all.” Regardless of the diplomatic challenges, Holbrooke said that a “pure military victory is not possible,” so the political approach must push forward.