G20 urged to head off war of devaluations
"The G20 needs to deliver on the commitment to move to market-determined exchange rates and refrain from competitive devaluation," said Lael Brainard, the Treasury's undersecretary for international affairs.
"Global growth is weak and vulnerable to the downside."
She said strengthening demand must be a priority for G20 finance ministers and central bankers meeting in Moscow on Friday.
She said she supports efforts in Japan to end deflation and reinvigorate growth. "It will be important that structural reforms accompany macro-economic policies."
The G7 nations are considering issuing a statement confirming they won't target exchange rates when setting policy as they try to calm concerns that the world is on the brink of a currency war.
Finance officials from the world's key industrial economies have drafted the statement, which is being reviewed by senior policy makers.
The wording combines the traditional backing for market-set exchange rates with a new line that governments do not direct fiscal or monetary policy at driving currencies, one official said.
The push for more aggressive monetary policy by the Prime Minister of Japan, Shinzo Abe, has raised concerns that his government is directly seeking to weaken the yen.
Ms Brainard said China needed to "further boost household demand and reinvigorate the move to a market-determined exchange rate and interest rates".
Frequently Asked Questions about this Article…
A senior US Treasury official urged the G20 to avoid competitive currency devaluations and to promote transparency by moving to market-determined exchange rates. The message was to refrain from using fiscal or monetary policy to deliberately weaken a currency and to support more open, market-set exchange-rate practices.
Officials warned that global growth is weak and vulnerable, and competitive devaluations could undermine global stability and spark a damaging currency war. The article says leaders want to calm those concerns by committing to market-set exchange rates rather than policies aimed at gaining trade competitiveness through weaker currencies.
Market-determined exchange rates are rates set by supply and demand in foreign-exchange markets instead of direct government intervention. For investors, market-driven rates generally signal that currency moves reflect economic fundamentals rather than deliberate policy actions, which can reduce the risk of sudden, policy-driven currency shocks.
Lael Brainard urged the G20 to stick to market-determined exchange rates and refrain from competitive devaluation, said strengthening demand should be a priority for finance ministers and central bankers, and supported Japan’s efforts to end deflation while stressing that structural reforms must accompany macroeconomic policy.
The G7 is considering issuing a statement confirming it will not target exchange rates when setting policy. Draft wording reportedly combines traditional support for market-set rates with an explicit line that governments should not direct fiscal or monetary policy at driving currencies.
The article notes that Prime Minister Shinzo Abe’s push for more aggressive monetary policy has raised concerns that the Japanese government might be directly seeking to weaken the yen, prompting calls for clear commitments not to target exchange rates.
Lael Brainard said China needs to further boost household demand and reinvigorate its move to market-determined exchange rates and interest rates, highlighting the importance of domestic demand and currency liberalization in supporting global growth.
Everyday investors should monitor G20 and G7 statements and central-bank and finance-minister actions, especially from economies like Japan and China, because those signals on exchange-rate policy and demand-supporting measures can influence currency moves and broader market sentiment.
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