Currency Wars Shaking the Foundations of Global Economy

Market Leader informed

The main intrigue of the G20 Summit held late last week involved the issue of devaluation of national currencies. It resulted in a decision of the Ministers of Finance of leading G20 countries that can be briefly characterized as eagerness to shift to such a foreign currency exchange rate system that would consider market and economic realities and treat excessive devaluation of currencies in a reserved manner. Moreover, as recorded in the summary minutes, developed economies will keep the situation regarding instability and inadequacy of currency rates fluctuations under control in the near future. For actively developing economies such measures should become a guarantee of reduced risks inherent to violent fluctuations in capital flows that can sometimes cause real disasters.

Unfortunately, nice words are not backed by specific decisions and steps. The so-called issue of currency wars became crucial long before the summit. However, the forum didn’t outline any practical and effective measures, while the historic statement that ‘the world’s leading countries agree to refrain from competitive devaluation of national currencies’, it seems, was included in the minutes of the meeting even before it actually started. Nevertheless, nobody expected a huge sensation because any country that dares to criticize manipulations with a national currency of a certain nation will immediately face tangible resistance from the ‘offended’ state.Interestingly, the summit didn’t put any emphasis on such an important suggestion that state issuers of reserve currencies should follow aligned monetary policies to prevent developing economies from suffering. Developed countries were expected to inform the Great 20 of their plans in order to maintain stability of the global economy.

The United States of America appeared profoundly disappointed because it planned to summon up support of most countries at the summit. It put forward a proposal to establish rigid deficit-surplus limits for the balance of payments as compared to the country’s GDP. The balance of the current account was to be within 4% of GDP. But some countries didn’t find this idea appealing, for example, opponents of numerical limitations included Russia, Japan and Germany

It appears that no quantitative characteristics used to keep misbalances of countries at a low level were recorded in the joint communiqué. Governments of leading economies limited themselves to another series of slogans called for multilateral cooperation and implementation of comprehensive measures to maintain balances of payments on a due levelforgetting, however, to specify where that mysterious level would be…

 

 

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