US calls for G20 action on exchange rates to avoid currency war
‘‘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 under-secretary for international affairs.
She said strengthening demand must be a priority for G20 finance ministers and central bankers meeting in Moscow on Friday, adding that she supports efforts in Japan to end deflation and reinvigorate growth.
The G7 nations are considering issuing a statement confirming that they won’t target exchange rates when setting policy as they try to calm growing 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.
Frequently Asked Questions about this Article…
Senior US Treasury official Lael Brainard urged the G20 to avoid competitive currency devaluations, promote greater transparency in exchange rates, and commit to market-determined exchange rates rather than policies aimed at weakening currencies to boost competitiveness.
Officials are concerned that countries might pursue competitive devaluations to gain trade advantage, which could spark retaliatory moves and higher currency volatility. The draft G7 wording and G20 focus aim to calm those fears and support more orderly exchange-rate outcomes.
Lael Brainard said strengthening demand should be a priority for the G20 finance ministers and central bankers meeting in Moscow, and she voiced support for efforts in Japan to end deflation and reinvigorate growth.
G7 officials have drafted a statement—now under review—that would confirm they will not target exchange rates when setting policy, combining traditional backing for market-set exchange rates with a new line that governments do not direct fiscal or monetary policy at driving currencies.
The push for more aggressive monetary policy by Japan's prime minister, Shinzo Abe, to end deflation and stimulate growth has raised concerns that the government may be directly seeking to weaken the yen, which contributes to global worries about competitive devaluation.
Competitive devaluation refers to policies that deliberately weaken a country's currency to make exports cheaper and boost competitiveness. For investors, such moves can increase foreign-exchange volatility and affect returns on international investments.
The article reports that G20 finance ministers and central bankers were meeting in Moscow on Friday to discuss exchange-rate policies and related priorities such as strengthening demand.
Investors should watch for official communiqués or statements from the G20 and G7 about market-determined exchange rates or commitments not to target currencies, as these announcements can influence currency markets, investor sentiment, and cross-border investment risk.
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