Finance Minister Jim Flaherty says the threat of a ?currency war? among Group of 20 members has been quelled, with finance ministers and central bankers saying markets should set currencies levels, not governments.
?We all agreed to strengthen our commitments around market-determined exchange rates and not to target our exchange rates for competitive purposes,? Mr. Flaherty said in a conference call from Moscow, where he attended the G20 summit.
The issue of currency manipulation came to a head just prior to the two-day G20 meeting, when Japan was questioned whether recent changes to its monetary and fiscal policies were also aimed at lowering the value of the yen to gain an advantage for the country?s exports.
The G7 ? grouping Canada, the United States, Japan, Germany, Britain, France and Italy ? released a surprise statement last Tuesday, saying ?will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates.?
Japanese officials quickly denied that policy changes ?including setting an inflation target of 2%, similar to Canada and Britain ? were designed to artificially weaken its currency.
Mr. Flaherty said ?members of the G20 agreed with what had been put in the statement by the G7 . . . the fact that we are against protectionism, that we are against currency manipulation, that, in a positive way, we believe in market determination of the value of currencies.?
?We are all agreed that the markets will determine the value of our respective currencies, not governments.?
Mr. Flaherty has previously warned that the currency issue could sidetrack progress in other major economic matters.
?We cannot be satisfied with the current state of the global economy. The global uncertainty and the continuing fragility in Europe, and the U.S., in particular, remain a challenge to all of us,? he told reporters in the conference call.
?So we need to follow through in our past commitments in order to secure a strong recovery and to strengthen the international financial and regulatory systems,? he said.
?As we have in Canada, I encouraged my colleagues to put their finances on a sustainable, long-term path, while focusing on jobs and growth.?
In its communiqu? on Saturday, the G20 said it would ?move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals, and avoid persistent exchange rate misalignments, and in this regard, work more closely with one another so we can grow together.?
?We reiterate that excess volatility of financial flows and disorderly movements in exchange rates have adverse implications for economic and financial stability,? it said.
?We will refrain from competitive devaluation. We will not target our exchange rates for competitive purposes, will resist all forms of protectionism and keep our markets open.?
The communiqu? did not specifically mention the currency of Japan ? the world?s third largest economy, but once No. 2 after the United States. The yen has depreciated by about 20% since the new policies were introduced earlier this year.
China, which has replaced Japan in the second-biggest economy, has been critical of the monetary policies of the major developed country.
Zhu Guangyao, China?s vice-finance minister, said in Moscow that these nations should ?pay attention to their monetary policy spillover.?
?Major developed countries? implementation of excessively relaxed currency policy has an influence on the world economy,? state-run news agency Xinhua quoted him as saying.
The Moscow meeting, which wrapped up Saturday, produced little movement toward government debt reduction, an issue that was a cornerstone of the Toronto G20 gathering in 2010.
The debt-cutting agreement reached in Toronto will need to be extended at the G20 leaders summit in September in St. Petersburg. Russia holds the G20 presidency this year.
Financial Post
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