Finance Chiefs Promise to Avoid Currency Wars Amid Weak Recovery

  • IMF policy committee says market volatility has increased
  • Communicating policy and refraining from protectionism key

Global finance chiefs pledged to refrain from competitive currency devaluations as the world economy faces increased volatility.

The International Monetary and Financial Committee reiterated its commitment to avoid "all forms of protectionism and competitive devaluations," according to a statement released in Lima Friday. The IMF’s main policy committee represents 25 of the institution’s 188 member nations.

"Careful calibration and clear and effective communication of policy stances are essential to help limit excessive market volatility and negative spillovers," the IMFC said at the fund’s annual meetings in Peru.

A slowdown in emerging markets driven by weak commodity prices forced the Washington-based IMF to cut its outlook this week for global growth in 2015
to 3.1 percent from a July forecast of 3.3 percent. This week’s meeting was dominated by the prospect of higher U.S. interest rates and China’s economic slowdown. The IMF warned that over-borrowing by companies has left emerging economies vulnerable to financial stress and capital outflows.

In 2015, emerging markets will see their first year of negative capital flows since 1988, as investors pull $541 billion from countries such as China and Brazil, the Institute of International Finance said in a report last week.

Advanced economies should maintain loose monetary policy where appropriate, while emerging markets need to pay special attention to foreign-currency exposures, the committee said. "Exchange rate flexibility, where feasible, can act as a shock-absorber," the panel said.

It called on the IMF to stand ready to respond promptly to demand for its loans. The fund will conduct a review of the international monetary system, including the global financial safety net, according to the statement.

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