G-20 moving against ‘competitive devaluation’

February 18, 2013 at 12:00a.m.

McClatchy Newspapers

NEW YORK

The Group of 20 finance ministers and central bank governors pledged Saturday to monitor negative currency spillovers to other countries caused by monetary policies implemented for domestic purposes.

“We will refrain from competitive devaluation,” the G-20 said at its meeting in Moscow.

The G-20 fell short of any direct action related specifically to Japan, which has drawn criticism for policy moves that have caused the yen to lose 17.5 percent against the dollar in five months.

Though a weaker yen helps keep prices of Japanese exports lower on the international market, it’s also unleashed talk of a race to the bottom in currencies.

French Finance Minister Pierre Moscovici said the language in the statement amounted to a pledge that “we refuse to enter any currency war,” according to reports.

Canadian Prime Minister Jim Flaherty said leaders agreed to strengthen language since discussions earlier in the week.

Christine Lagarde, managing director of the International Monetary Fund, said talk of currency wars “is overblown” and praised the G-20 for responding with cooperation rather than conflict.

“It was heartening to see the G-20 reaffirmed its commitment to move more rapidly toward more market-determined exchange-rate systems and exchange-rate flexibility to reflect underlying fundamentals,” Lagarde said in a prepared statement.

The G-20 also put off plans for new debt-cutting goals in a move to stoke economic growth.

“Monetary policy should be directed toward domestic price stability and continuing to support economic recovery,” the G-20 said. “We commit to monitor and minimize the negative spillovers on other countries of policies implemented for domestic purposes.”

The G-20 statement follows on the heels of drama in the currency market, with the yen on a roller-coaster ride earlier this week.

G-7 officials reaffirmed their “long-standing commitment to market determined exchange rates and to consult closely in regard to actions in foreign exchange markets.”

Among his top six worries about foreign exchange markets, Steven Englander, global head of G-10 FX strategy at CitiFX, cited criticism of Japan from just about everywhere on moves to push the value of the yen down.

Meanwhile, the European Central Bank has attempted to assure markets the euro won’t be allowed to appreciate to the point where it hinders an economic recovery.

G-20 officials continued their push for an international effort to limit the ability of multinationals to transfer profits overseas to cut their tax payments.

“We are determined to develop measures to address base erosion and profit shifting,” the G-20 said.

The Organization of Economic Cooperation and Development plans to present an action plan to the G-20 in July on this front.

The policy talk comes as Facebook, Amazon.com, Google, Starbucks and others have drawn scrutiny for tax strategies.