G7 fails to halt currency wars
INTERNATIONAL leaders yesterday failed in their attempt to reassure investors that a currency war would not be allowed to escalate, after a joint-statement failed to convince analysts and prompted sharp fluctuations in the foreign exchange markets.
Finance ministers of the Group of Seven leading nations, known as the G7, sought to reaffirm their “commitment to market determined exchange rates” in response to leaders in some countries, such as Japan and France, advocating policies that are designed to weaken currencies.
But the statement also said that “excessive volatility and disorderly movements in exchange rates can have adverse implications”. It was initially read as a defence of the status quo, forcing a G7 official to speak out and say it had been “misinterpreted”.
“The G7 is concerned about unilateral guidance on the yen. Japan will be in the spotlight at the G20 in Moscow this weekend,” the official warned.
Having caused the yen to ease following the publication of the first statement, the official’s words caused it to spike against major currencies, gaining nearly one per cent against the euro and US dollar. The greenback dived to below ¥ 93 during trading, before recovering to hover around ¥ 93.5 last night.
As a member of the G7, Japan would appear to support the statement. Its finance minister, Taro Aso, has insisted that the G7 has no problem with its ultra-loose monetary regime. New Prime Minister Shinzo Abe is pursuing an aggressive policy of easing.
European Central Bank chief Mario Draghi attempted to play down talk of a currency war yesterday, telling reporters: “I think the term currency wars is way, way over done. We are not witnessing anything like that.”
Yet leading politicians continue to contradict each other over the use of currency manipulation ahead of the G20 summit at the end of this week.
Incoming Bank of England governor Mark Carney, speaking in Canada, insisted that the G7 statement was a pledge that monetary policy must only be for “domestic objectives”. “It’s important that we as a G7 go in united and forcefully to the G20 to enlarge that commitment as quickly as possible amongst the major emerging economies in the G20,” he said.
Some members of the G20, which includes China, “have a lot of work to do” when it comes to supporting flexible exchange rates, Carney admitted.