Saturday, February 16, 2013
DJ: G-20 Pledges To Refrain From Currency Conflict
MOSCOW-In an effort to calm talk of conflict, the Group of 20 industrial and developing nations Saturday pledged to not weaken their currencies in order to gain a competitive advantage.
They also pledged to ensure that their monetary policies are solely focused on price stability and growth.
Wrapping up two days of talks between finance ministers and central bank heads, the G-20 issued a statement saying developed countries will seek to "minimize" the impact on others of policies designed to stimulate their domestic economies.
The statement also commits developed countries to "develop credible medium-term fiscal strategies" by the time of a September gathering of G-20 leaders in St. Petersburg.
G-20 officials agreed that economic growth is still "too weak," although they said threats from extreme outcomes to the euro-zone crisis and other ongoing problems "have receded."
And they took some of the responsibility for that weakness, saying businesses and consumers had been affected by doubts about how G-20 members will tackle their problems.
"We agree that the weak global performance derives from policy uncertainty, private deleveraging, fiscal drag, and impaired credit intermediation," the statement said.
With a sustained recovery in global economic growth still a distant prospect, officials want to lay to rest speculation that they are in conflict over the impact that unprecedented levels of monetary stimulus have had on exchange rates.
At issue is the level of trust that G-20 nations have in each other, and can display to skeptical investors and wary business leaders.
Officials involved in the talks said they had helped build trust among those involved.
"I think there is a greater awareness of each other's positions today," said D. Subba Rao, governor of the Reserve Bank of India, the nation's central bank.
Among officials, there is a widespread acceptance that monetary policy stimulus has and will have the effect of weakening the currencies of those involved.
But those nations that see their currencies strengthening must be convinced that is a side effect, rather than the main goal of the stimulus.
"We will refrain from competitive devaluation," the statement said. "We will not target our exchange rates for competitive purposes. Monetary policy should be directed toward domestic price stability and continuing to support economic recovery."
The language used in statement differs from that published Tuesday by the Group of Seven leading industrialized economies Tuesday. In particular, the G-20 statement qualifies the pledge to refrain from targeting exchange rates.
A senior official at a G-20 government who was involved in the talks said that qualification was added at the request of the Chinese government, which does manage its exchange rate, but says that is for reasons of domestic financial stability, rather than international competitiveness.
Members that are pursuing stimulus policies said they will try to ensure those policies do as little harm as possible to the economic interests of others in the group.
"We commit to monitoring and minimizing negative spillovers on other countries of policies implemented for domestic purposes," the statement said.
Most G-20 members have played down talk of conflict over exchange rates, popularly known as currency wars.
"The talks were more shadow-boxing than currency warfare," said Olli Rehn, the European Union's economics commissioner.
The officials failed to agree to set new targets for cutting budget deficits and debts.
Many G-20 officials attending a two-day meeting here wanted to extend a deadline set at a meeting in Toronto in 2010 for members to at least halve their budget deficits by 2013 and stabilize or reduce government debts by 2016.
For now, governments will have the freedom to set their own goals to suit the particular state of their economies.
"Credible medium-term fiscal consolidation plans will be put in place and implemented, taking into account near-term economic conditions and fiscal space where available," the statement said.
In recent months, comments from Japanese Prime Minister Shinzo Abe suggesting the targeting of a specific, weaker exchange rate have irked other G-20 nations.
But the statement does not include a reference to the currency policies of individual G-20 official members.
G-20 officials also said they would develop measures to close loopholes in the web of treaties that govern taxation of multi-national companies.
"We are determined to develop measures to address base erosion and profit shifting," they said.