U.S. Federal Reserve Chairman Ben Bernanke listens to a speaker
at a summit of G-20 financial ministers and heads of central banks.
While failing to address the issue of currency manipulation head
on,
the group has indicated that it recognizes the problem.
Major Powers Appear
Intent on Continuing Currency Manipulation (Estadao,
Brazil)
"Brazilian
officials have attempted, alone, to force discussion about the monetary
policies of the United States and the eurozone, and their
effects on the foreign exchange market. In this, there has been virtually no
success. Both U.S. and European officials justify resorting to monetary
expansion for the sole aim of stimulating their economies, and without directly
intending to affect exchange rates."
The currency war insistently denounced by the Brazilian government
should be one of the major themes of the G-20 meeting in Moscow, which is
taking place today and tomorrow. Most governments in the rich world don't even
officially acknowledge the existence of the problem, not least because in
recent years, some of them have been accused of manipulating exchange rates for
commercial advantage. And in recent days, the issue ended up being included on
the agenda of the major powers. Officials of the G-7, formed by the major
capitalist economies, pledged on Tuesday to allow the exchange rate to be set by
market forces. They have officially resigned themselves to depreciating their
currencies to make products from their countries cheaper and more competitive.
The commitment to good behavior and strict monitoring of currency rates was made
by the United States, Japan, Germany, the United Kingdom, France, Italy and
Canada. So there is little likelihood of keeping the problem off the agenda this
weekend.
[Editor's Note: Just before the summit opened, Canada,
the United States, Japan, Germany, Britain, France and Italy, released a statement that they "will remain oriented toward meeting
our respective domestic objectives using domestic instruments, and that we will
not target exchange rates."]
Three events over recent days have highlighted the currency
issue. The first was Japan's new more-expansionist monetary policy. The
official goal is the reinvigoration of its economy, which is characterized by persistent
deflation. One immediate consequence was the devaluation of the yen, an added
benefit to Japanese industry. The second was recognition of the appreciation of
the euro by European Central Bank President Mario Draghi.
The third was the demand by French President François Hollande for a policy of
competitiveness for the euro.
Under German leadership, most European governments remain
officially oppose to intervention in the foreign exchange market. A way out was
found with a pledge to take the risk of exchange-rate competition more seriously,
propose a commitment to non-intervention to the governments of the major powers,
and also, to take the opportunity to send a message to the government and central
bank of Japan.
Since the beginning of the 2008 recession, representatives
of major developed and emerging economies have promised to avoid protectionist
measures and support the continued expansion of free trade. Nevertheless,
barriers have been erected. Yet in subsequent years, the promise was reiterated
several times.
The currency issue has always been present, but in a limited
way. Pressing Chinese authorities to allow fluctuation of the yuan has long been a mandatory item at G-7, G-8, and G-20 meetings
of the main multilateral bodies like the International Monetary Fund. Brazilian
officials have attempted, alone, to force discussion about the monetary
policies of the United States and the eurozone, and their
effects on the foreign exchange market. In this, there has been virtually no
success. Both U.S. and European officials justify resorting to monetary
expansion for the sole aim of stimulating their economies, and without directly
intending to affect exchange rates.
Their explanations are very similar to the language
of the communiqué on Tuesday [Jan. 12]. According to representatives of the
G-7, their "fiscal and monetary policies have been and will remain
oriented towards meeting our respective domestic objectives using domestic
instruments, and that we will not target exchange rates." The discussion
proposed by the Brazilian government remains, in theory, as difficult as
before. You can show that exchange rates effect of a monetary measure, but how
to prove intent?
Posted By
Worldmeets.US
The Brazilian authorities have tried, so far unsuccessfully,
to include exchange rates on the agenda of the World Trade Organization. So
far, the Chinese, Americans and Europeans have united against the Brazilian
claim. The discussion of the G-7 apparently opened some space for another
Brazilian attempt, but the actual text of the communiqué is hardly encouraging.
Perhaps the G-20 meeting will result in a similar statement, issued on behalf
of a larger number of countries, but any result of greater practical
significance will be a surprise. The discussion in Moscow might contribute to
keeping the issue alive at the WTO. From the point of view of the Brazilian government,
that would be a win.
[Editor's Note: The only allusion to currency
manipulation in the G-20 final communiqué
is the following: "We reiterate that excess volatility of financial flows
and disorderly movements in exchange rates have adverse implications for
economic and financial stability."
