G-20 Draft Affirms Vow to Avoid Competitive Devaluations

G-20 finance leaders meet in the Kremlin in Moscow on Feb. 15, 2013. The G-20 talks this week in Washington will be the first since the Bank of Japan announced details of a plan for record monetary easing. Photographer: Sasha Mordovets/Getty Images

April 18 (Bloomberg) -- Group of 20 nations will affirm a
commitment to avoid weakening their currencies to gain a trade
advantage, according to a draft statement prepared for a meeting
this week in Washington, Bloomberg BNA reported.

The statement, seen by a Bloomberg BNA reporter, maintains
a February pledge to “move more rapidly toward more market-determined exchange rate systems and exchange-rate flexibility”
and to refrain from competitive devaluations. Meetings of
finance ministers and central bankers start today.

The initial language suggests G-20 members will withhold
direct criticism of Japan’s efforts to rally its economy from 15
years of deflation even after the yen’s 19 percent slide against
the dollar in the past six months. Yi Gang, a People’s Bank of
China deputy governor, said yesterday that the yuan’s trading
band will be widened “in the near future,” a comment that
Credit Suisse Group AG said was for a political audience.

Japanese Prime Minister Shinzo Abe’s campaign to end
deflation “always carries the risk of triggering criticism from
trading partners and it remains a balancing act warranting
careful handling,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former Bank of Japan
official. “So far, he’s succeeded in the challenge, though
there is still a way to go.”

Japan’s Easing

The G-20 talks will be the first since the Bank of Japan
announced record monetary easing. The BOJ plans to purchase 7.5
trillion yen ($76 billion) of bonds a month and double the
monetary base in two years, the central bank said April 4. U.S.
Treasury Secretary Jacob J. Lew and Bank of Canada Governor Mark
Carney this week signaled support for Japan’s stimulus.

A first-draft communique describes the global outlook as
“generally somewhat weaker and uneven” with “unbalanced”
recoveries between advanced economies and emerging markets.

The yen has dropped about 5 percent against the U.S. dollar
since the day before the BOJ announcement, the biggest slide
among 16 major currencies and more than three times as fast as
the drop in the Australian dollar, the second-worst performer.
Japan’s yen has declined by at least 2 percent against all of
the more than 150 currencies Bloomberg tracks worldwide.

G-20 Goals

Lew yesterday urged G-20 officials to maintain a pledge to
refrain from influencing exchange rates at the expense of other
countries, saying Japan’s recent policies align with the pact.
Carney also said that Japan’s measures are consistent with the
G-20’s goals and are positive for Canada’s economy.

The BOJ has “clearly innovated,” International Monetary
Fund Managing Director Christine Lagarde said in an interview
today on Bloomberg Television.

The exchange rate of China’s yuan “is going to be more
market-oriented,” Yi said yesterday at an IMF conference in
Washington. “Last year, they increased the floating band from
0.5 percent to 1 percent. I think in the near future they’re
going to increase the floating band even further.”

While such a move would be part of building the
“infrastructure” for China’s currency to eventually have a
bigger global role, the timing of the comment indicated it was
for a political audience -- the U.S. Congress, said Tao Dong, a
Credit Suisse economist in Hong Kong.

G-20 officials gathering in the next two days will discuss
the draft statement and changes may be made before its release.

Global Outlook

“Fiscal drag, policy uncertainty, impaired credit
intermediation, private deleveraging, and an incomplete
rebalancing of global demand continue to weigh on global growth
prospects,” the draft says. The U.S. and Japan will be asked
to set out “credible” plans for medium-term fiscal
consolidation, while acknowledging that scope exists in the U.S.
to “provide more support for economic recovery.”

Euro-area countries will be asked to move more quickly
toward a banking union.

On financial regulation, the draft text calls for further
steps by G-20 members to introduce resolution regimes for
winding down faltering “too-big-to-fail” banks without
triggering fiscal instability or taxpayer-financed bailouts.

The text also calls on the Financial Stability Board to
lead reforms concerning short-term interest-rate benchmarks and
to submit a status report to the G-20 leaders’ summit in St.
Petersburg, Russia, in September on steps to reduce reliance on
credit-rating companies.

G-20 members are Argentina, Australia, Brazil, Canada,
China, the European Union, France, Germany, India, Indonesia,
Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South
Korea, Turkey, the U.K. and the U.S.