Leaders in G-20 make pledge on exchange rates
Price stability and domestic growth should be the goal, officials agree.
WASHINGTON — Top finance officials of the world’s 20 largest economies sought Saturday to allay fear of a currency war, pledging not to target exchange rates to gain a competitive advantage in trade.
But the joint statement, issued at the end of a meeting in Moscow of the socalled Group of 20, or G-20, did not single out any country, essentially giving a pass to Japan to keep pursuing its economic policies despite a significant slide in the value of the yen since November.
Japan’s new government under Prime Minister Shinzo Abe, who will meet with President Obama this week in Washington, had been talking down the yen and has pressed its central bank for more expansive monetary stimulus to break out of its def lationary trap and boost the nation’s stagnant economy. A cheaper currency helps a country’s exporters sell their goods to foreign markets.
Some analysts said they now expect the yen to dip further, a prospect that could stoke contention over exchange rates and present complications for the United States in its long-running efforts to inf luence China to make more rapid adjustments in its currency.
“The U.S. could tolerate the yen depreciation, but clearly this is a potential problem insofar as China could interpret it as a possible green light to make its currency weaker,” said Domenico Lombardi, a senior scholar at the Brookings Institution in Washington.
American officials were careful not to fault Japan, an important ally in Asia. What’s more, the Federal Reserve also has taken extraordinary measures to stimulate its domestic economy, for which the U.S. has come under similar accusations from some G-20 nations that it was aiming to cheapen the dollar to boost exports.
Federal Reserve Chairman Ben S. Bernanke, in remarks Friday at a G-20 session with finance ministers and central bankers, said the United States was simply “using domestic policy tools to advance domestic objectives.”
The Fed has been aggressively buying Treasury bonds with the aim of pushing down long-term interest rates to stimulate investment and reduce the unemployment rate, but that has contributed to a weakening of the dollar.
Many economists believe that currency manipulation occurs when a government intervenes, for example, by buying up dollars, specifically to devalue its currency. This, they say, is different from what may be an unintended byproduct of largescale monetary stimulus to support one’s domestic economy.
Intended or not, other analysts said the distinction was not so clear when the result was the same.
Aiming to make that more clear, the G-20 statement said monetary policies should be directed at price stability and domestic growth. “We will refrain from competitive devaluation,” it said.
The statement said the G-20 would “monitor and minimize the negative spillovers on other countries of policies implemented for domestic purposes,” but it did not set any benchmarks or enforcement mechanism.
A weaker Japanese yen isn’t likely to have a major effect on the U.S. economy, and certainly not any time soon. American officials are far more interested in the politically sensitive issue of the Chinese currency. Although the Chinese yuan has risen significantly against the dollar in recent years, many in the U.S. still consider it undervalued and harmful to American exporters.
Besides currency f luctuations, G-20 finance officials also took up budget austerity. The Eurozone’s debt crisis and deepening recession have prompted some in Europe to rethink the idea of setting tough budget deficit targets.
The Obama administration, fighting at home to avert stringent fiscal cuts that it believes could hurt the nation’s economic recovery, has long pressed the G-20 to put more emphasis on pro-growth policies and less on austerity. But Germany and some others have insisted on fiscal consolidation and debt reduction as key pathways to recovery.
A debt-cutting agreement forged at the G-20 in Toronto in 2010 will expire this year, and officials at the Moscow meeting made no announcement on the issue.
Reflecting a reduced sense of urgency as the Eurozone’s troubles have eased somewhat and the global outlook has moderately improved, the joint statement noted that risks to the world economy had receded.
Still, it said, growth remains too weak and unemployment too high:
“A sustained effort is required to continue building a stronger economic and monetary union in the euro area and to resolve uncertainties related to the fiscal situation in the United States and Japan, as well as to boost domestic sources of growth in surplus economies.”
The G-20 represents the largest industrialized and developing nations, with about 90% of the world’s economic output. It was designated in 2009 as the primary international forum for world leaders to address global financial issues and coordinate economic policies.
The finance ministers’ gathering, which ended Saturday, was the first with Russia’s President Vladimir Putin as this year’s chairman of the G-20.