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G-20 Aims to Assuage Currency War Fears (Wall Street Journal)

Posted by Joseph Trevisani on Feb 16, 2013 10:46:00 AM

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 were solely focused on price stability and growth.

A senior U.S. administration official hailed the pledge as a step toward establishing common guidelines on foreign-exchange policy. And one after the other, officials speaking after the meeting stressed that they were united in their pledge to refrain from competitive devaluation

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," though 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.

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.


The G-20 finance ministers and central bank governors meet in Moscow on Friday.

"We will not target our exchange rates for competitive purposes," the statement said. "Monetary policy should be directed toward domestic price stability and continuing to support economic recovery."

Among officials, there is a widespread acceptance that monetary stimulus has 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.

European Central Bank Vice-President Vitor Constancio said Saturday that it was essential that countries keep "verbal discipline" and stick to what was agreed Saturday, namely that G-20 countries move quickly to market-determined exchange rates and accept that such rates should reflect the fundamentals of their respective economies, while at the same time avoiding disorderly currency movements and excess volatility.

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.

Japan's finance minister, Taro Aso, said Tokyo agreed with the pledge to avoid competitive currency manipulation and was committed to a market-determined exchange rate.

The language used in statement differs from that published Tuesday by the Group of Seven leading industrialized economies. 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 it does so 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.

Germany's central bank president, Jens Weidmann, said it was clear at the meeting that G-20 members agreed that "politically driven devaluations can't sustainably improve competitiveness, don't solve structural problems and produce backlash reactions, and the clear language in the communique underlines this unity."

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.

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.

—Ainsley Thomson and Harriet Torry contributed to this article.

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