G20 pledges peace on currency front

Feb. 16, 2013 at 10:59 AM
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MOSCOW, Feb. 16 (UPI) -- A Group of 20 nations meeting in Moscow concluded Saturday with a pledge to focus monetary policy on domestic growth to steer away from a currency war.

The group of major economic countries issued a statement that said they would each try to "minimize" any impact on currency fluctuations their domestic monetary policies might cause.

Specifically, nations fear that a trading partner or a competitor nation would take steps to devalue its currency, which would make that country's exports cheaper and make imports more expensive.

Currency devaluations, as such, decrease the standard of living in the country where that occurs, but it also gives their exporters an instant price advantage abroad.

Finance leaders at the two-day G20 meeting in Moscow had offered mixed reactions to Japan's recent yen devaluation, pushed by Japan's new government.

U.S. Federal Reserve Chairman Ben Bernanke, who has orchestrated several rounds of quantitative easing in the United States, said, "We would welcome similar approaches by other countries," arguing that a stronger U.S. economy, albeit at the price of minor currency devaluations, was good for the global economy, as well.

The New York Times reported Saturday that Bernanke endorsed a statement by International Monetary Fund Director Christine Lagarde that Japan's strategy was "sound policy."

Japan's recent stimulus measures have pared back the value of the yen by 15 percent since the first of the year. While that has made Japanese exports relatively cheaper abroad, it has also made it more expensive for people in Japan to buy imported products, which is why the devaluations are not universally endorsed.

Lagarde did say a blatant step towards currency devaluation would be frowned upon. And Germany's Finance Minister Wolfgang Schauble was critical of the use of quantitative easing as a means of lowering the government's deficit. Governments, instead, should use fiscal discipline to manage their deficits, he said.

The G20 group also pledged to "develop credible medium-term fiscal strategies," and admitted that they had prolonged the recovery through policy uncertainty.

Major threats to the global economy, most notably the sovereign debt crisis in Europe, had "receded," the group said.

The group also said, "We agree that the weak global performance derives from policy uncertainty, private deleveraging, fiscal drag and impaired credit intermediation."

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