PARIS — The G20 group of major economies, and not a smaller group of five global powers that excludes Canada, is the best forum to prevent the world from plunging into another economic crisis, Finance Minister Jim Flaherty said here Friday.

"I actually think that (a G5) would be a significant step backward," Flaherty told reporters at the start of a two-day meeting of G20 finance ministers and heads of central banks.

The ministers are struggling to find agreement on what would seem to be the simplest of tasks — how to measure whether the global economy is out of balance.

China signalled Friday that it won't support the position advanced by the majority, including Canada, fearing that the goal is to point fingers at China's massive current account surplus and huge foreign exchange reserves.

Despite those struggles, Flaherty dismissed a proposal, floated here by a Washington-based banking industry think-tank Thursday, for the creation of a less unwieldy G5 group of countries that included the U.S., China and Germany — the three countries at the epicentre of the growing problem of global trade and currency reserve imbalances.

Flaherty said the G20 proved its value during the 2008 meltdown, when it co-ordinated stimulative spending measures and rock-bottom interest rates to avoid a 1930s-style depression.

"I think we learned during the course of the crisis that one needs to have the significant economies of the world around the table seeking to reach consensus," he said.

"Our leaders have said the G20 is the primary economic forum in the world and we just need to continue to rise to that challenge."

The world, in fact, needs more Canada rather than less, Flaherty said when asked if he supports a reformed international monetary system.

He said he supports the inclusion of not only China's renminbi currency but also the Canadian dollar and some other currencies in an expanded basket used in the International Monetary Fund's Special Drawing Rights.

The SDR is an artificial currency used as a supplemental reserve for national banking systems. It is now based on the American dollar, the euro, the Japanese yen and the British pound.

France is pushing for the inclusion of the renminbi as a carrot to convince China to allow its currency to rise in value.

"We're a major commodities exporter in the world," Flaherty said.

"If we're going to talk about what's actually going on in the world, it's a relevant currency, particularly with respect to oil but also with respect to wheat, with respect to the most important fertilizer in the world, which is potash, and with respect to many other commodities."

Flaherty touted the G20's ongoing value while acknowledging that while he is optimistic he and his colleagues are going to succeed in striking a deal Saturday on how to measure global economic imbalances, he isn't certain of unanimity.

China later confirmed those misgivings when Finance Minister Xie Xuren said the G20 should use trade figures rather than current account balances to assess economic distortions.

China objects to the use of current account balances, which include income a country generates from dividends and interest as well as from trade, as a measurement tool.

China has a massive current account surplus, while the U.S. has a huge deficit, and this imbalance is considered one of the central problems threatening the global economy.

The Chinese finance minister said countries such as China shouldn't be targeted just because they want to build significant reserves.

"Emerging markets, to deal with financial crises and economic shocks, need to set up a certain amount of reserves."

Flaherty said he doesn't support the option of China "opting out" of an accord on ways to measure imbalances, a formula that also would include government debts and deficits, as well as private debts and savings rates.

"If the G20 is going to be the leading economic forum and we're going to address imbalances as our leaders directed us to do, we need to arrive at a set of indicators to which we all agree."

The finance minister maintained Canada's firm opposition to two of French President Nicolas Sarkozy's pet projects — a tax on financial transactions to pay for climate change and development aid projects, and measures to limit speculators who he says are artificially driving up commodity prices, especially on oil and food.

"Frankly, there's a lack of evidence of speculation in commodities driving commodity prices up, and I'm referring not only to natural resources but to food," he said.

"What we do know is happening is there's a surge in demand, especially for some food commodities, because of the rapid growth of the middle class in some of the emerging economies."

poneil@postmedia.com

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