G7 backs market exchange rates

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IOL world currency1 Graphic: Renjith Krishnan.

London - The Group of Seven nations reiterated its commitment on Tuesday to market-determined exchange rates and said fiscal and monetary policies must not be directed at devaluing currencies.

It followed a heated round of rhetoric about currency wars, prompted largely by Japan's new government pressing for an aggressive expansion of monetary policy, which has seen the yen weaken sharply as a result.

“We, the G7 Ministers and Governors, reaffirm our longstanding commitment to market-determined exchange rates and to consult closely in regard to actions in foreign exchange markets,” said the statement, released by Britain which chairs the G8 (G7 plus Russia) forum this year.

“We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates.

“We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability. We will continue to consult closely on exchange markets and cooperate as appropriate.”

Despite that, there is little suggestion that Tokyo is going to come under serious pressure when G20 finance ministers and central bankers meet in Moscow at the end of the week not least because the United States is indulging in similar policies.

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US Treasury official Lael Brainard said on Monday that while competitive devaluations should be avoided, Washington supported Tokyo's efforts to reinvigorate growth and end deflation. - Reuters


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