MOSCOW, Feb 16 (Reuters) - The Group of 20 nations declared on Saturday there would be no 'currency war' and deferred plans to set new debt-cutting targets in an indication of concern about the fragile state of the world economy.
Japan’s
expansive policies, which have driven down the yen, escaped criticism
in a statement thrashed out in Moscow by financial policymakers from
the G20, which groups developed and emerging markets and accounts for
90 percent of the world economy.
After late
night talks, finance ministers and central bankers agreed on wording
closer than expected to a joint statement issued last Tuesday by the
Group of Seven rich nations backing market-determined exchange rates.
A
draft communique seen by delegates on Friday had steered clear of the
G7’s call for fiscal and monetary policy not to be targeted at
exchange rates but the later version included a G20 commitment to
refrain from competitive devaluations and stated monetary policy
would be directed at price stability and growth.
“The
language has been strengthened since our discussions last night,”
Canadian Finance Minister Jim Flaherty told reporters. “It’s
stronger than it was, but it was quite clear last night that everyone
around the table wants to avoid any sort of currency disputes.”
The
communique, seen by Reuters ahead of publication, did not single out
Japan for aggressive monetary and fiscal policies that have seen the
yen drop 20 percent.
The
statement reflected a substantial, but not complete, endorsement of
Tuesday’s statement by the G7 nations – the United States, Japan,
Britain, Canada, France, Germany and Italy.
“We
all agreed on the fact that we refuse to enter any currency war,”
French Finance Minister Pierre Moscovici told reporters.
NO
FISCAL TARGETS
The
text also contained a commitment to credible medium-term fiscal
strategy, but stopped short of setting specific goals.
A
debt-cutting pact struck in Toronto in 2010 will expire this year if
leaders fail to agree to extend it at a G20 summit of leaders in St
Petersburg in September.
“Advanced
economies will develop credible medium-term fiscal strategies … by
the St. Petersburg summit,” the communique said.
The United
States says is on track to meet its Toronto pledge but argues that
the pace of future fiscal consolidation must not snuff out demand.
Germany and others are pressing for another round of binding
debt-cutting goals.
Backing
in the communique for the use of domestic monetary policy to support
economic recovery reflected the U.S. Federal Reserve’s commitment to
monetary stimulus through quantitative easing, or QE, to promote
recovery and jobs.
QE
entails large-scale bond buying — $85 billion a month in the Fed’s
case — that helps economic growth but creates money, much of which
has leaked into emerging markets, threatening to destabilise them.
That
was offset in the communique by a commitment to minimise “negative
spillovers” of the resulting financial flows that emerging
markets fear may pump up asset bubbles and ruin their export
competitiveness.
“Major
developed nations (should) pay attention to their monetary policy
spillover,” Vice Finance Minister Zhu Guangyao was quoted by
state news agency Xinhua as saying in Moscow.
“Major
developed countries’ implementation of excessively relaxed currency
policy has an influence on the world economy.”
Russia,
this year’s chair of the G20, said the group had failed to reach
agreement on medium-term budget deficit levels and also expressed
concern about ultra-loose policies that it and other big emerging
economies say could store up trouble for later.
Finance
Minister Anton Siluanov said a rebalancing of global growth required
more than an adjustment of exchange rates.
“Structural
reforms in all countries, either with a positive or negative balance
of payments, should play a bigger role,” he said in an address
to Saturday’s talks, also highlighting the risk of spillover effects
from unconventional monetary policy.
The G20 put
together a huge financial backstop to halt a market meltdown in 2009
but has failed to reach those heights since. At successive meetings,
Germany has pressed the United States and others to do more to tackle
their debts. Washington in turn has urged Berlin to do more to
increase demand.
On
currencies, the G20 text reiterated its commitment last November, to
move towards “exchange rate flexibility to reflect underlying
fundamentals and avoid persistent exchange rate misalignments”.
“The
G7 made a very clear statement this week. I think you’ll see the G20
echo what was said, and say that currencies should not be used as a
tool of competitive devaluation,” Britain’s finance minister,
George Osborne, said in Moscow.
“Countries
shouldn’t make the mistake of the past of using currencies as a tool
of economic warfare.”
