Treasury’s Brainard Says G-20 Must Refrain From Devaluation

The Group of 20 nations must avoid currency devaluations aimed at increasing competitiveness and promote more transparency in exchange rates, the U.S. Treasury Department’s top international official said.

“The G-20 needs to deliver on the commitment to move to market-determined exchange rates and refrain from competitive devaluation,” Lael Brainard, the Treasury’s undersecretary for international affairs, said at a news conference in Washington today. Brainard said “global growth is weak and vulnerable to the downside,” and strengthening demand must be a top priority for G-20 finance ministers and central bankers meeting in Moscow Feb. 15-16.

Brainard said she supports the effort in Japan to end deflation and “reinvigorate growth. It will be important that structural reforms accompany macroeconomic policies to achieve these goals.”

The Group of Seven nations are considering saying they won’t target exchange rates when setting policy as they try to calm concern that the world is on the brink of a so-called currency war, two officials from G-7 countries said.

Exchange Rates

Finance officials from the world’s key industrial economies have drafted a statement on currencies now being reviewed by senior policy makers, they said on condition of anonymity. The current wording, which still may be changed, combines the traditional backing for market-set exchange rates with a new line that governments don’t direct fiscal or monetary policy at driving currencies, one aide said.

Japanese Prime Minister Shinzo Abe’s push for more aggressive monetary policy has raised concern abroad that his government is directly seeking to weaken the yen, something it denies.

Japan has been criticized for driving down the yen by officials from South Korea to Russia in the run-up to the G-20 meeting. Abe administration officials have said that they are focused on ending deflation, rather than seeking a specific level for the yen.

Haruhiko Kuroda, the head of the Asian Development Bank and a potential contender for Bank of Japan chief, said in an interview that the BOJ could usher in a growth spurt unseen in a generation by stepping up stimulus and ending deflation.

Currency Policies

Brainard, when asked whether the G-7 will release a statement on currency polices, said the group remains in close communication and she expects its members “will continue to adhere to the longstanding agreements that we have.” Those accords “importantly include a commitment to floating exchange rates, with very rare exceptions in cases that excess volatility or disorderly movements might warrant cooperation,” she said.

Brainard, who will attend the Moscow meetings, said China needs to “further boost household demand and reinvigorate the move to a market-determined exchange rate and interest rates.” She also said it’s important for Europe “to come together around a joint strategy that supports growth.”