G20 Finance Ministers and Central Bank Governors Say This about Currencies

April 16, 2016

A statement issued by G20 finance ministers and central bank governors after a two-day meeting in Washington contained this passage regarding currencies and what role governments might play in their determination.  The comments are consistent with what officials have been saying for many years.  Currency manipulation is considered a form of protectionism, but a role exists for currency market intervention when exchange rate movements become so volatile and speculatively rapid as to imperil economic growth or when currency levels seem far out of whack with fundamental economic trends.

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.

The statement notes that financial markets have rebounded from the deep losses early this year but retains a guarded view of the economic outlook:  “growth remains modest and uneven, and downside risks and uncertainties to the global outlook persist against the backdrop of continued financial volatility, challenges faced by commodity exporters and low inflation. Geopolitical conflicts, terrorism, refugee flows, and the shock of a potential UK exit from the European Union also complicate the global economic environment.”  Officials also assert that “monetary policy alone cannot lead to balanced growth.”  This a veiled all to “use fiscal policy flexibly to strengthen growth, job creation and confidence, while enhancing resilience and ensuring debt as a share of GDP is on a sustainable path.”

Many years have now passed since the main forum for coordinating macroeconomic policies passed from the Group of Seven (U.S., Japan, Germany, Italy, France, U.K., and Canada) to the broader Group of Twenty.  This change was done in recognition that the G7 excluded very important up-and-coming economies that at the time were the most dynamic piece of the global economy.  The main reservation against this switch at the time was that a considerably larger and more diverse policy-making body would prove cumbersome and less equipped at crisis management.  Alas, the G20 has not achieved the central currency market influence once enjoyed by the G7.

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

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