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G-20 Against Currency War

World leaders against currency war (Photo montage)

(Webpublicapress/New York) - The world’s 20 largest economies have reportedly strengthened language in a draft communiqué speaking out against a feared currency war. But, as Radio Deutsche Welle reports – the group has so far failed to set new targets for debt reduction. The Group of 20 (G20) was working Saturday on a pledge to prevent the competitive devaluation of their currencies, after Japan had depreciated the yen by some 20 percent. They were meeting in Moscow for day two of the G20 summit.

EU concerned about strong euro

EU finance ministers have expressed alarm that the euro is too strong and that a currency war could follow. Germany’s Wolfgang Schäuble stressed his commitment to pressuring Europe to implement reforms. (13.02.2013)

“The language has been strengthened since our discussions last night,” Canadian Finance Minister Jim Flaherty told reporters. “It’s stronger than it was, but it was quite clear last night that everyone around the table wants to avoid any sort of currency disputes.”

Since the election of Japanese Prime Minister Shinzo Abe in December, the Bank of Japan has undertaken a policy course of monetary easing, in a bid to devalue the yen, thereby cheapening Japan’s exports and making them more competitive overseas. The yen’s devaluation has sparked fears of retaliation from other major economies.

Krugman’s opinion

Yet, according to Paul Krugman, Nobel price winning economist it is somehow different: “First of all, what people think they know about past currency wars isn’t actually true. Everyone uses some combination phrase like “protectionism and competitive devaluation” to describe the supposed vicious circle of the 1930s, but as Barry Eichengreen has pointed out many times, these really don’t go together. If country A and country B engage in a tit-for-tat of tariffs, the end result is restricted trade; if they each try to push their currency down, the end result is at worst to leave everyone back where they started”, Krugman wrote in his column in New York Times on February 15th.

“Currencies should not be used as a tool of competitive devaluation,” George Osborne, Britain’s chancellor of the exchequer, told reporters in Moscow on Saturday. “The world should not make the mistake that it has made in the past of using currencies as tools of economic warfare.”

The Group of Seven (G7) developed economies met in London on Tuesday, where they pledged to uphold “market-determined exchange rates.” The G7 includes Canada, France, Germany, Italy, Japan, the United States and the United Kingdom.

Vague on fiscal policy

The G20, which is being hosted by Russia, has remained vague about new goals to slash public debt. A debt-cutting package made in Toronto in 2010 is set to expire this year, if the G20 nations do not extend it or strike a new deal.

In the draft communiqué seen by the Reuters news agency, the G20 pledges to set “medium-term fiscal strategies” by the St. Petersburg summit in September. But Russian Finance Minister Anton Siluanov called on the G20 to make progress on debt goals before that summit.

“We expect that by April countries will have made progression reaching a balanced approach to establishing new budget indicators on both deficit and the level of government debt,” Siluanov said

But there is disagreement within the G20. While the US has used monetary stimulus and government debt in a bid to jump start its weak economy, Germany is calling for austerity measures to reduce budget deficits.

The G20 is made up of the world’s leading developed and emerging economies. It represents around 90 percent of the global economy.

(Source: RDW and Agencies)

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