G20: Hangzhou


G20: Hangzhou

Group of Seven leaders will not use currencies to wage 'economic warfare'

Leading economies agree currency devaluations must not be exploited to gain a competitive edge

PUBLISHED : Sunday, 17 February, 2013, 12:00am
UPDATED : Thursday, 06 July, 2017, 11:38am

G20 finance ministers yesterday moved to calm fears of looming "economic warfare" on the currency markets, pledging they would not target specific forex rates or devalue currencies to make them more competitive.

The jitters - similar to previous disputes with China - have been set off by Japan's plan for monetary easing to boost inflation and activity by reducing the value of the yen under Prime Minister Shinzo Abe.

Japan's expansive policies, which have driven down the yen, escaped criticism in a statement. After late-night talks, finance ministers and central bankers agreed on wording closer than expected to a statement issued on Tuesday by the Group of Seven rich nations backing market-determined exchange rates.

"We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes," said a communiqué after the G20 finance meeting in Moscow under Russia's presidency.

The communiqué did not single out Japan for aggressive monetary and fiscal policies that have seen the yen drop 20 per cent, a trend that may now continue.

The statement made clear that forex rates should be set by markets, and not intervening governments.

It affirmed the G20's commitment to move "more rapidly towards more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals".

Emerging-market officials reiterated a call for developed countries to assess the effects of easy money on their economies. They're concerned that a flood of easy money will push up currencies and create asset bubbles.

Rich nations should "pay attention to the effects their monetary policies have on external markets" China's deputy finance minister, Zhu Guangyao , told Xinhua.

In a nod to the complaints, the G20 said monetary policy should be directed towards domestic price stability and supporting recovery. Officials will monitor and minimise "negative spillovers" abroad.

Striving to give the impression of a united front among the world's top 20 economies, the G20 ministers vowed to "work more closely with one another so we can grow together".

Britain's finance minister, George Osborne, had earlier warned of the dangers of "economic warfare" as countries tried to outdo each other with successive devaluations.

"Currencies should not be used as a tool of competitive devaluation. The world should not make the mistake that it has made in the past of using currencies as the tools of economic warfare," Osborne said.

European capitals fear that devaluations of currencies like the yen would make their own exports less competitive and harm extremely fragile economic recoveries at home.

For the first time in several international meetings, the concerns over currencies have overshadowed the economic troubles of the debt-ridden euro zone, which leaders hope is heading for a gentle recovery.

Earlier, Britain, France and Germany launched a new drive to help national budgets by making big business pay full taxes and not avoid payments via schemes such as offshore companies.

Additional reporting by Bloomberg, Reuters