“I am sort of not convinced that there is as a big an issue here as all that,” Turner told reporters in Stockholm today when asked whether some countries are trying to depreciate their currencies. “There is a resolution of it by saying as long as all countries are making intelligent decisions appropriate to their own monetary circumstances, let the exchange rates go where the exchange rates go.”
Group of 20 finance chiefs over the weekend sharpened their stance against governments trying to influence exchange rates as they sought to tame speculation of a currency war without singling out Japan for criticism. The yen has weakened about 13 percent versus the dollar in the past three months after Japanese Prime Minister Shinzo Abe announced spending increases and pressured the Bank of Japan to boost easing.
Turner, who was a potential candidate to succeed Mervyn King as Bank of England governor, said that a weakening of a currency is one side effect of looser monetary policy.
“If they are the only country in the world that decides that, it is highly likely that they will get a depreciation of their currency and that that will be one of the transmission mechanisms through which the policy is expansionary,” he said. “Obviously, not all countries can simultaneously achieve a depreciation of their currency.”
“Seen through that, it is not clear that there is a problem here in currency wars,” Turner said. “Let each country make the decision as to its appropriate monetary policy in the light of the present dynamics of inflation, unemployment and real output and the growth of nominal demand in its country and that will either produce a shift in relative exchange rates or it won’t.”
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