U.S. President Barack Obama defended the Federal Reserve's policy of printing dollars on Monday during a trip to India, after Chinese officials stepped up criticism ahead of this week's Group of 20 meeting.
The G20 summit has been pitched as a chance for leaders of the countries that account for 85 percent of world output to prevent "currency wars" from spreading to become a rush to protectionism that could imperil the global recovery.
It has been overshadowed by disagreements over the U.S. Federal Reserve's quantitative easing (QE) policy under which it will print money to buy $600 billion of government bonds, a move that could depress the dollar and cause a potentially destabilising flow of money into emerging economies.
"I will say that the Fed's mandate, my mandate, is to grow our economy. And that's not just good for the United States, that's good for the world as a whole," Obama said.
"And the worst thing that could happen to the world economy, not just ours, is if we end up being stuck with no growth or very limited growth," he said.
The U.S. has frequently criticised China, saying it deliberately undervalues its currency to boost exports.
Despite U.S. officials repeating the mantra that they believe in a "strong dollar", China says Washington is engaged in the same thing that it stands accused of.
"As a major reserve currency issuer, for the United States to launch a second round of quantitative easing at this time, we feel that it did not recognise its responsibility to stabilise global markets and did not think about the impact of excessive liquidity on emerging markets," Chinese Vice Finance Minister Zhu Guangyao said at a briefing in Beijing on Monday.
The U.S. quantitative easing policy was unveiled last week to jeers from emerging market powerhouses from Latin America to Asia. Russia renewed its assault on the programme on Monday.
"Russia's president will insist …. that such actions are taken with preliminary consultations with other members of global economy," said Arkady Dvorkovich, a Russian official who is preparing the country's position in Seoul.
The U.S. measures have triggered concerns over inflation and gold, a traditional hedge against rising prices, briefly powered to a record high above $1,398 an ounce.
U.S. UNDER PRESSURE IN BIPOLAR WORLD
India is Obama's first stop in a 10-day trip to Asia that will include Indonesia and Japan.
He will arrive in Seoul for the Nov. 11-12 summit weakened by a crushing congressional election defeat for his Democratic Party and under fire from all sides. Germany described U.S. economic policy as "clueless" last week.
The U.S. has already backed down on one proposal for the G20, a measure that would cap current account balances at 4 percent of gross domestic product, something economists said was clearly aimed at China.
At the weekend, U.S. Treasury Secretary Timothy Geithner backed away from the numerical target that had been rejected by China, Germany, Japan and others in a sign that global financial power had slipped from U.S. hands.
The risk of a negative outcome in Seoul appears to be increasing, or at the very least, an agreement that papers over the huge gaps and allows countries to pursue their own economic policies whether it be intervening in currency markets like South Korea and Japan or printing dollars.
"Judging by the critical response of emerging market governments to QE, the likelihood of a ceasefire in the currency war is slim," RBC Capital markets said in a report published on Monday.
