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G20 finance ministers meet to avert 'currency wars'

Ministers from the world’s most developed countries are meeting in Russia hoping to agree not to devalue their currencies.

Image: Michael Probst/AP

FINANCE MINISTERS from the G20 states have gathered in Moscow for a meeting aimed at reassuring markets that the world’s economic powers would not slug it out in “currency wars” to boost national growth.

For the first time in several meetings, the troubles of the debt-ridden eurozone will not be centre stage – with the main concern expected to be Japan’s controversial plan for “monetary easing” that weakens the yen.

President Vladimir Putin is due to address the ministers before closed-door talks get underway in this afternoon afternoon and continue into tomorrow.

“We do not want state intervention in exchange rates. We want exchange rates that are determined by the markets,” German finance minister Wolfgang Schauble told German Radio ahead of the talks.

“I am actually very confident that will also be the joint position of all G20 countries in Moscow,” Schauble added in an interview on Germany’s Inforadio.

The two-day G20 meeting, being hosted by Russia for the first time as it holds the presidency of the world’s leading economies, is a prime chance for Moscow to present itself as a reliable global economic player.

Russia has set itself the task during its presidency – which will culminate in the G20 summit from September 5-6 in Saint Petersburg – to launch a “new cycle of growth” through investment, transparency and regulation.

Too good to be true

But economists fear that currency devaluations, making the national currency cheaper to stimulate exports and domestic activity, could prove too tempting if governments see no other way out.

The Japanese answer to the US policy of quantitative easing – where the central bank buys bonds held by banks, to increase the quantity of money in the economy – would be aimed at helping Japan reach an inflation target of 2.0 per cent after years of deflation.

Under heavy pressure from new Prime Minister Shinzo Abe and his ruling Liberal Democratic party, Japan’s central bank last month announced plans for monetary easing which immediately pushed down the yen.

But the Secretary General of the OECD, Angel Gurria, denied that a currency war was in progress, saying everyone wanted Japan to rid itself of the curse of deflation.

“There is no currency war. We are further today away from a currency war than we were two years ago or three years ago,” he said in Moscow.

“What we have is a number of countries using their instruments, whatever room they have left on the monetary side, whatever little room there might be on the fiscal side to generate growth or at least to stop the downturn.”

The G7 group of the world’s richest nations, including Japan, issued a statement on Tuesday declaring a commitment to “market-determined exchange rates” in an effort to soothe markets.

The United States has urged the world to refrain from “competitive devaluation”, a message echoed by the European Commission, France and Germany.

An appreciation of the euro as market sentiment improves could also be damaging for the extremely fragile economy in the eurozone.

Russia, which does not want to see the ruble appreciate against other currencies, had indicated its strong opposition to artificial currency devaluations.

“Trying to change the exchange rate is like trying to cure a serious illness with painkillers — firstly it will not help and secondly it will come back in any case,” deputy finance minister Alexei Moiseyev said this week.

“I think that this is harmful and useless,” he added, saying that the G7 statement had given the right signal.

- © AFP, 2013

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Gavan Reilly

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