G-20 Countries Vow to Refrain From Currency Depreciation
05 September 2015 - 9:01PM
Dow Jones News
By Ian Talley
ANKARA--The world's largest economies, including China, will
renew their commitment to avoid depreciating their currencies to
gain a competitive trading advantage, a senior U.S. Treasury
official said Saturday.
Weak growth prospects are tempting many countries around the
world to devalue their exchange rates in an attempt to spur their
economies, a policy that boosts exports at the expense of other
countries and fuels global trade tensions. But wary of triggering a
global cascade of such competitive devaluations that could add
another burden to an already anemic global economy, the Group of 20
biggest industrialized and developing economies will, in their
official statement due out later today, vow to refrain from the
practice.
"There is a clear understanding that competitive devaluation
presents a threat that everyone has to be on guard against, both in
their policies and their words," the senior official said.
China's sudden decision last month to devalue its currency
initially spurred worries that Beijing was reverting to its old
policy playbook of using a depreciated yuan to drive growth in a
bid to revive a flagging economy.
The International Monetary Fund, seen as the global arbiter on
exchange rates, said the move was caused by Beijing allowing market
pressures to play a greater role in setting the currency's value.
Worries over China's growth have put downward pressure on the yuan
of late, IMF officials said, so the depreciation was a natural
occurrence.
But the move was followed by currency depreciation in other
countries, including Vietnam and Kazakhstan. Japanese officials
also mentioned devaluing the yen, feeding worries that China's
depreciation might have sparked a dangerous round of global
depreciations.
U.S. officials acknowledge the yuan's depreciation is minor
compared with the roughly 15% appreciation of that currency over
the past year, accounting for inflation and given that China's
currency is roughly pegged to the dollar. They also accept that
Beijing's change in its exchange-rate policy is a move toward the
currency being more market determined, part of a broader effort to
get the currency included in the IMF's elite basket of currencies
that comprise its lending reserves.
But the Americans are also concerned China's currency could
continue depreciating, that Beijing could reverse course if markets
start pressing the exchange rate up, and that this latest
depreciation could be the first of a series of downward moves.
The key test, Treasury officials say, is whether China allows
the yuan to appreciate should market forces pressure it upward.
Washington has also worried that China's slowdown and recent
market turmoil could cause Beijing to slow, or even reverse their
plans to overhaul their economy. The government has embarked on a
strategy meant to shift away from reliance on exports to consumer
demand, and open up its markets to foreign investment and
liberalize its economy. Those efforts are necessary to ensure
long-term growth prospects, the U.S. and IMF say.
Chinese officials at the G-20 said they planned to stick to
their liberalization strategy, the U.S. official said.
"We've heard in meetings this week here that there is a
sustained commitment to that reform agenda," the official said.
Beijing's actions, however, "will be very important in showing how
that commitment will be carried forward."
Should Beijing continue to move ahead with promised economic
overhauls, the official signaled Washington could support the
country's efforts to get the yuan labeled a reserve currency by the
IMF. "There's an openness to a positive outcome," the official
said.
Write to Ian Talley at ian.talley@wsj.com
(END) Dow Jones Newswires
September 05, 2015 06:46 ET (10:46 GMT)
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