G-20 Disavow Targeting Exchange Rates in Strengthened StanceGonzalo Vina, Henry Meyer and Toru Fujioka
Group of 20 finance chiefs shifted toward a tougher stance on exchange rates as they sought to tame speculation of a global currency war without singling out Japan for criticism.
After all-night negotiations in Moscow, the club of the biggest developed and emerging economies agreed not to “target our exchange rates for competitive purposes,” according to an official who saw a draft of a statement to be released today and asked not to be identified because the document isn’t public yet. That marks a strengthening of language from previous drafts and runs closer to what the Group of Seven rich nations said earlier this week.
“It was quite clear last night that everyone around the table wants to avoid any sort of currency disputes,” Canadian Finance Minister Jim Flaherty told reporters today. U.K. Chancellor of the Exchequer George Osborne said countries must avoid their past mistake of using currencies “as a tool of economic warfare.”
Policy makers are attempting to soothe concern that governments are increasingly trying to weaken exchange rates to spur growth through exports. The risk is a 1930s-style spiral of devaluations and protectionism if other countries retaliate to safeguard their own economies.
Japan has fallen under the greatest suspicion after the yen dropped 7 percent this year against the dollar amid calls from Prime Minister Shinzo Abe for looser monetary policy to end deflation. Japanese officials in Moscow denied driving down the yen and said the world would benefit from a healthier Japan.
“Japan’s monetary policy is focused on ending deflation and stabilizing the domestic economy by achieving sustainable growth under price stability,” Bank of Japan Governor Masaaki Shirakawa said yesterday. Finance Minister Taro Aso said a stronger Japan would “have a positive impact on the global economy.”
The yen fell for the first time in four days yesterday as officials said the G-20 didn’t plan to repeat the G-7’s Feb. 12 vow “that we will not target exchange rates.” That line was undermined by G-7 officials later bickering over whether it indicated irritation with Japan.
The G-20 statement will include the comment and echo the view members already agreed on in November that countries will move “more rapidly” toward market-determined exchange rates and “refrain from competitive devaluation,” the official familiar with the draft said. It will repeat that “disorderly movements in exchange rates” and “excess volatility in financial flows” can threaten economic and financial stability.
The G-20 will also say that while the risks to the world economy have receded, it remains too weak and unemployment is too high in many countries, the official said. That requires more work to create a stronger monetary and economic union of euro-area countries, resolve uncertainties surrounding the budgets of the U.S. and Japan and boost domestic demand in economies with large trade surpluses.
The G-20’s advanced nations bowed to U.S. pressure by not setting new fiscal targets to replace those agreed in 2010 and which many of them are on course to miss. They will pledge instead to develop “credible medium-term fiscal strategies.”
Central bankers outside Japan also defended their embrace of stimulus.
Federal Reserve Chairman Ben S. Bernanke said yesterday in Moscow that the U.S. has deployed “domestic policy tools to advance domestic objectives,” adding that bolstering the U.S. economy will support world growth.
Bank of England policy maker Martin Weale will say in a speech in the U.K. today that although U.K. central bankers don’t “target the exchange rate,” there may be further economic benefits from the pound’s six-year decline and any resulting inflation can be tolerated.
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.”
ECB President Mario Draghi took a less categorical approach, saying the euro plays an important role in assessing the economic outlook.
The week’s mixed messages and speculation of a devaluation race drew criticism from the G-20’s finance ministers and central bankers gathering in Moscow.
“Chatter” about exchange rates is “self-defeating,” Draghi said. Flaherty said talk of a currency war is “contributing to the uncertainty that is holding back stronger growth.”
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.”
Still, Brazilian and Chinese officials reiterated a call for developed countries to monitor the effects of stimulus on emerging markets. They’re concerned that a flood of easy money into such economies will push up currencies and threaten creating asset bubbles.
Brazilian Finance Minister Guido Mantega, who popularized the phrase “currency war” in 2010, yesterday said his government wouldn’t allow the real to over-appreciate after reaching a nine-month high.
Rich nations should “pay attention to the effects their monetary policies have on external markets,” Vice Chinese finance Minister Zhu Guangyao told the state-run Xinhua news agency from Moscow.
In a nod to that concern, the G-20 will say monetary policy should be directed toward domestic price stability and officials will monitor and minimize “negative spillovers” abroad, according to the draft statement.
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