Finance chiefs from rich nations agreed on Saturday a global recovery was gaining steam and papered over tensions on currency exchange rates by warning markets "excess volatility" was not to be tolerated.
As finance ministers and central bankers from the Group of Seven wrapped up a two-day meeting at a plush Florida resort, they sought to calm fretful currency markets and to offer a balm to Europeans worried their rising euro could hurt growth.
"Excess volatility and disorderly movements in exchange rates are undesirable for economic growth," the G7 said in a closing communiqué. "We continue to monitor exchange markets closely and co-operate as appropriate."
The statement by the United States, Britain, Canada, France, Germany, Italy and Japan was a calculated effort to counter the impact of their announcement in Dubai last September urging "more flexibility" in currencies - which prompted a dollar sell-off that took its value down 10 percent against the euro.
But analysts said while the statement may give pause to markets in the short term, it will not change a longer-term downward trend for the dollar stemming in part from record US budget deficits.
"I think we are much closer to intervention," said Marcel Kasumovich, a foreign-exchange strategist with Merrill Lynch in New York, referring to the possibility that a continued appreciation in the euro's value could lead Europe to counter it by selling the currency and buying dollars.
LET MARKETS REIGN: US Treasury Secretary John Snow, at a press conference afterward, made clear that was not something the free market-oriented Bush administration wanted to see and repeated a familiar refrain that competition should reign.
"A strong dollar is in our national interest," Snow said. "But the relative values of currencies are best established in open competitive currency markets. Nobody can devalue their way to prosperity."
The G7 statement went a step further, saying there should be "more flexibility in exchange rates ... for major countries or economic areas that lack such flexibility," in an apparent reference to Asian countries that peg their currencies to others - as China links its yuan to the dollar - or intervene regularly to affect values.
Snow turned aside a question on whether China, which the United States wants to loosen its 8.3 yuan peg to the dollar, was the intended target. He said only that the statement was agreed by the full G7 and said "it speaks for itself."
Japan's Finance Minister Sadakazu Tanagaki denied that Japan, which has spent heavily to keep its yen from rising in value and sapping its exports, was one of the countries that lacked flexibility in currency issues.
"That's not the case," he said after the G7 meeting, indicating that Tokyo would keep up its market forays when the yen got out of line with fundamentals, a resolve which could be tested as early as next week.
In fact, the United States felt getting more specific references to the need for flexibility into the communiqué was worth giving Europe a concession by inveighing against volatility. Nor did the resulting compromise lessen pressure on China - by some measures now the world's second largest economy - to speed up currency reform.
MANY MANIPULATORS: China is not the only country that manipulates its currency. South Korea and Taiwan, among others, are regularly criticised for doing so. Some G7 participants made lightly veiled references to the Asian countries.
"The various currencies that are not flexible will recognise themselves," European Central Bank President Jean-Claude Trichet said. "There is not only one, there are quite a few."
European officials arrived at the meeting, held in a luxurious resort on Florida's wealthy "Gold Coast" near Miami, determined to have the Dubai wording altered to clarify that it was not intended to sanction a soaring euro that could imperil their export-led recovery.
The US view after the meeting was that Europe had been wrong in feeling the Dubai statement sanctioned a dollar sell-off but that it was worth accommodating them as long as the importance of flexible currencies was preserved.
The G7 participants, while allowing that a global economic recovery was quickening, warned the pace was uneven and said countries needed to redouble their efforts to boost growth.
The officials also wagged a finger at Argentina, urging it in the statement to "engage constructively" with creditors and live up to its pledges to multilateral lenders.
A number of G7 officials have expressed frustration at Argentina's slow progress in talks with private bondholders aimed at restructuring $88 billion in defaulted debt.
Buenos Aires has held fast to its offer, made in Dubai last year, of 25 cents on every dollar of nominal debt.
Comments
Comments are closed.