ECB’s Coeure Warns Against Competitive Currency Devaluations

European Central Bank Executive Board member Benoit Coeure said it would be a concern if countries were to openly pursue weaker currencies to bolster their economies.

“It would be a matter of concern if countries were to directly pursue overt competitive devaluations, particularly by resorting to large purchases of foreign assets,” Coeure said in a speech in Washington today. “The economic literature highlights the dangers of individual countries pursuing beggar-thy-neighbour or burden-shifting policies. I believe this message is well understood by central bankers.”

Japanese Prime Minister Shinzo Abe said in February that buying bonds to weaken the yen won’t be necessary as the nation battles deflation, backing away from an initial proposal that prompted global concerns about currency manipulation. Coeure said such policies could “expose global markets to serious risks of an escalation of trade and financial protectionism.”

While the exchange rate isn’t a target for the ECB, the Frankfurt-based central bank takes it into consideration and could take measures to offset currency moves if they impacted on the inflation outlook, he said.

The exchange rate “matters for price stability and growth and, as such, it is part of the overall assessment of the appropriateness of the policy stance,” Coeure said. If it is “contrary to the objective of medium-term price stability, it may thus trigger offsetting policy actions.”

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