G-20 Resists Currency War Crackdown
Group of 20 finance chiefs debated adopting a tougher stance on exchange rates as they prepare to reiterate a pledge against competitive devaluations.
With policy makers meeting in Moscow, the Japanese yen fell after a G-20 official said there isn’t a plan to echo a Group of Seven promise to avoid using policies to target exchange rates. French Finance Minister Pierre Moscovici said he was seeing a “convergence” among participants toward the position on currencies adopted by the G-7.
Repeating the language the G-20 nations agreed on in November suggests the group won’t publicly criticize Japan, failing to address questions over how much a weaker yen features in its government’s plans to end deflation. It may also reflect reluctance by emerging markets such as China to fully disavow currency management.
The Japanese currency dropped for the first time in four days toward the end of a week in which rich economies sought to avert a so-called currency war by vowing not to make exchange rates a goal of policy. G-7 officials then reignited tensions by dividing over whether their first joint comment on currencies since 2011 was an attempt to slow the yen’s fall.
The draft of a statement, to be released today, instead repeats that markets should be free to determine exchange rates, said the official, who asked not to be identified because the document isn’t public. According to Moscovici, “the spirit is the same, the message is the same” as in the G-7 position.
Bank of Japan Governor Masaaki Shirakawa yesterday defended his country’s economic strategy, arguing it is aimed at beating 15 years of deflation rather than driving down the currency to lift exports. The yen has tumbled about 7 percent versus the dollar this year as new Prime Minister Shinzo Abe seeks more aggressive monetary policy.
“Japan’s monetary policy is focused on ending deflation and stabilizing the domestic economy by achieving sustainable growth under price stability,” Shirakawa, who will retire next month, told reporters in Moscow.
Federal Reserve Chairman Ben S. Bernanke said the U.S. has also deployed “domestic policy tools to advance domestic objectives,” adding that bolstering the U.S. economy will support global growth.
The week’s mixed messages and speculation that governments are embracing weaker currencies as a route to stronger economic growth drew criticism from the G-20’s finance ministers and central bankers gathering in Moscow.
“Chatter” about exchange rates is “self-defeating,” European Central Bank President Mario Draghi said. Canadian Finance Minister Jim Flaherty said talk of a currency war is “contributing to the uncertainty that is holding back stronger growth.”
As the talks began in the Russian capital, officials spoke little about the yen and more about their shared support for floating currencies.
“All members of the G-20 need to deliver on the commitment to move toward market-determined exchange rates,” U.S. Treasury Undersecretary Lael Brainard said
Australian Treasurer Wayne Swan framed the debate as one about the appropriate use of monetary policy, saying as long as measures are “directed toward getting stronger growth in the domestic economy, that’s a good thing for the global economy.”
That view was shared by Indonesian central bank Deputy Governor Hartadi Sarwono, who said a healthier Japanese economy should be welcomed as a boost for global growth.
“If the Japanese increase their domestic demand, it will help Indonesia, especially from the export side,” Sarwono said. “Up to now we don’t really have very much concern on the depreciation itself.”
Still, Brazilian Finance Minister Guido Mantega, who popularized the phrase “currency war” in 2010, said his government wouldn’t allow the real to over appreciate after reaching a nine-month high. Mantega has repeatedly criticized stimulus by developed countries for flooding emerging economies with capital, pushing up their currencies and threatening asset bubbles.
Some developing nations said “we should be cautious about the spillover effects of accommodative monetary policies in developed countries,” Japanese Finance Minister Taro Aso.
Not all G-20 policy makers want a lower exchange rate. European Central Bank council member Jens Weidmann said in a Feb. 13 interview published yesterday that “the exchange rate of the euro is broadly in line with fundamentals” and “you cannot really say that the euro is seriously overvalued.”
International Monetary Fund Managing Director Christine Lagarde blessed both of the recent trends, saying the euro’s climb and yen’s fall were the results of “welcome policy developments.”
G-20 members were divided over highlighting the issue of “currency war” in characterizing currency management, according to Japan’s Aso.
“There have been some comments calling a monetary and foreign-exchange policy currency war, but there were many more voices saying that’s clearly an exaggeration from officials who made remarks” at yesterday’s meeting, Aso said.
Limiting the G-20’s ability to sign up to the G-7’s position is the fact that some in the bigger club such as China use currencies as part of their policy toolkit, said Douglas Borthwick, a managing director and head of foreign exchange at Chapdelaine FX in New York.
“Within the G-20, a lot of economies manage their currencies so more are living in glasshouses and can’t throw stones,” he said.
Three months after saying they would identify new debt cutting goals, the G-20 sided with the U.S. over Europeans in agreeing to avoid specifying targets in the communique, the official familiar with the statement said. Most of the advanced nations are already on course to miss fiscal commitments made in 2010.
German Finance Minister Wolfgang Schaeuble called for new “concrete” targets, only for Brainard to speak of the need to calibrate fiscal policy with economic performance. The group will say governments should take account of the strength of their economies in the near term when trying to restore budget order, the official said.
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