G20 Meeting of Finance Ministers and Central Bank Governors Leaves Much Unresolved

February 27, 2016

A two-day meeting in Shanghai on Friday and Saturday provided a platform for a wide range of opinions over what to do about the daunting risks to the world economy, world peace and the environment.  A released statement typically speaks in generalities rather than specifics.  There’s no substance to ignite a clear upturn in market hope, no blueprint of coordinated actions to lift aggregate demand.  If investors were counting on the meetings to galvanize immediate policy relief, the better market tone last week may stumble in the days just ahead.  The problems are many: an ascendency of extremist and dysfunctional politics, excessively cheap oil, the opacity of host country China’s government, a planned U.K. referendum on June 23rd to decide if that country leaves the EU, renewed Russian militancy, the failure of technology to lift productivity, and smothering debt.

On economic conditions and prospects, the statement asserts,

The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth. Downside risks and vulnerabilities have risen, against the backdrop of volatile capital flows, a large drop of commodity prices, escalated geopolitical tensions, the shock of a potential UK exit from the European Union and a large and increasing number of refugees in some regions. Additionally, there are growing concerns about the risk of further downward revision in global economic prospects. While recognizing these challenges, we nevertheless judge that the magnitude of recent market volatility has not reflected the underlying fundamentals of the global economy.

On trade and exchange rates, the leaders said,

We reiterate that excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will consult closely on exchange markets. We reaffirm our previous exchange rate commitments, including that we will refrain from competitive devaluations and we will not target our exchange rates for competitive purposes. We will resist all forms of protectionism.

And on the matter of massive capital flows that have too often been destabilizing to real economies, the statement had this to note:

We will continue to promote the orderliness and predictability of sovereign debt restructuring processes and strengthen debt sustainability frameworks. Capital flows are a central feature of the international monetary system. Given the current development in the global economy, we will better monitor capital flows, including more timely identification of risks, and take stock of and review policy tools and frameworks as appropriate to address challenges arising from large and volatile capital flows, drawing on country experiences.

For many years, the Group of Seven — Germany, France, Italy, Great Britain, Japan, Canada and the United States —  undertook the task of of macroeconomic and foreign exchange policy coordination.  Finance ministers and top central bank officials met regularly around three times a year to compare observations and talk strategy, and agreed policy intentions to market players and the wider public.  Some time ago, this role was handed  over to the broader G20 some time ago.  The shift made sense conceptually because of the greatly enhanced importance of developing countries like China and India that had had no voice in the G7.  From a practical standpoint, the G20 has all too often been unwieldy because of its sheer size and consequential deficiency as a body capable of timely action against shared problems.  Not that the G7 didn’t sometimes suffer from the same drawback, but ineffectiveness has been even more apparent on the G20’s watch.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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