G20 Makes Tepid Statement On Currency Exchange Rates

The G20 finance ministers meeting in Korea issued a lukewarm endorsement of the obligations of each nation to prevent the use of its currency as a trade weapon. The statement has not teeth and does not address the current value of the yuan, whose artificially low level benefits China’s trade  and builds the People’s Republic’s $2.3 trillion foreign currency reserves.

The key part of the summary endorsed by the participants:

We will pursue structural reforms to boost and sustain global demand, foster job creation and increase growth potential;complete financial repair and regulatory reforms without delay;in advanced countries, formulate and implement clear, credible, ambitious and growth-friendly medium-term fiscal consolidation plans in line with the Toronto Summit commitments, differentiated according to national circumstances.

We are mindful of the risks of synchronized adjustment on the global recovery and of the risks that failure to implement consolidation, where immediately necessary, would undermine confidence and growth;continue with monetary policy which is appropriate to achieve price stability and thereby contributes to the recovery;move towards more market determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies. Advanced economies, including those with reserve currencies, will be vigilant against excess volatility and disorderly movements in exchange rates. These actions will help mitigate the risk of excessive volatility in capital flows facing some emerging countries.

Together, we will reinvigorate our efforts to promote a stable and well-functioning international monetary system and call on the IMF to deepen its work in these areas. We welcome the IMF’s work to conduct spillover assessments of the wider impact of systemic economies’ policies;continue to resist all forms of protectionist measures and seek to make significant progress to further reduce barriers to trade; and strengthen multilateral cooperation to promote external sustainability and pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels.

Persistently large imbalances, assessed against indicative guidelines to be agreed, would warrant an assessment of their nature and the root causes of impediments to adjustment as part of the Mutual Assessment Process, recognizing the need to take into account national or regional circumstances, including large commodity producers.

To support our efforts toward meeting these commitments, we call on the IMF to provide an assessment as part of the MAP on the progress toward external sustainability and the consistency of fiscal, monetary, financial sector, structural, exchange rate and other policies.

In other words, each nation agrees not to misbehave.

Douglas A. McIntyre