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G20: Hangzhou

By SCMP

G20: Hangzhou

Wishful thinking: Rumoured G20 deal to stabilise currency, like the 1985 Plaza Accord, is ‘just fantasy’, says China’s finance minister

PUBLISHED : Friday, 19 February, 2016, 11:42pm
UPDATED : Thursday, 06 July, 2017, 11:37am

It is wishful thinking to expect a deal addressing currency volatility – like the 1985 Plaza Accord – to be struck at next week’s G20 meeting in Shanghai, says China’s finance minister Lou Jiwei.

“That’s just the media’s fantasy,” Lou said on the sidelines of the Chinese 50 Economists Forum in Beijing on Friday. “That proposal doesn’t even exist.”

Lou was responding at the annual forum to questions about whether members of the G20 might reach an inter-government agreement to jointly intervene in the foreign exchange market.

The forum is a top Chinese economics club whose members include Lou, Liu He, President Xi Jinping’s right-hand man in economic policymaking; central bank governor Zhou Xiaochuan, central bank deputy governor Yi Gang, as well as renowned economist Wu Jinglian.

Asked whether a one-off yuan revaluation would be on the agenda at the meeting of finance ministers and central bankers from the Group of Twenty major economies in Shanghai next week, Lou said: “No, no, no.”

That’s just the media’s fantasy. That proposal doesn’t even exist
Lou Jiwei, finance minister

Lou’s comments came on the back of analysts’ –including Bank of America Merrill Lynch chief investment strategist Michael Hartnett’s – speculation that the world’s top economic decision-makers would seize the chance to strike a deal similar to the Plaza Accord.

The accord is an agreement between France, West Germany, Japan, the United States and Britain in 1985 that allowed the US dollar to weaken significantly through joint intervention in currency markets.

Some economists, including Yu Yongding, a former People’s Bank of China adviser, are arguing for a one-off revaluation of yuan.

But many other analysts see the deal and a one-off revaluation as implausible.

“It’s certainly not appropriate for policymakers to discuss what level the exchange rate should be at,” said Guan Tao, a former official with the State Administration of Foreign Exchange. “Nobody can tell where the right level should be.”

Guan said while there was a general sentiment that finance ministries and central banks around the world should improve policy coordination, they lacked specific proposals to act on.

State Council adviser Xia Bin said it was “very unlikely” for the G20 gathering to result in any concrete action plan.