World finance leaders targeted China on Saturday, urging Beijing to allow greater flexibility in its exchange rate, but spared Japan, where a weakening has sparked growing unease in Europe.
Group of Seven (G7) finance ministers and central bankers at the end of a two-day meeting in Essen, Germany, said global economic growth is now ”more balanced” and that the performance of the major economies ”remains favourable”.
The G7 — Britain, France, Canada, Germany, Italy, Japan and the United States — in addition appealed for ”vigilance” on hedge funds, a trillion-dollar industry that has grown strongly and rapidly in recent years.
But in the most eagerly anticipated section of its final statement, the G7 stressed that ”excess volatility and disorderly movements in exchange rates are undesirable for economic growth”.
”In emerging markets with large and growing current-account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur.”
China’s key trading partners, notably the US, have long called on Beijing to allow its currency, the RMB or yuan, to float more freely on exchange markets.
European and US officials contend that an undervalued yuan gives Chinese exports an unfair advantage on world markets.
European officials at the talks had been looking for action specifically on the Japanese yen, which has lost 9% of its value against the euro since April and is seen as a threat to eurozone exports.
But disquiet in the eurozone is not shared in the US, where US officials contend that the value of the yen reflects Japanese economic fundamentals and is affected by legitimate market forces. The US therefore appeared to lend support to Japan’s resistance to any specific allusion to the yen in the final statement.
Elsewhere, the G7 offered a generally positive assessment of global economic prospects. ”In our economies, performance remains favourable,” the ministers said.
The US economy is ”experiencing solid activity, while adjusting to a more sustainable growth path”, the statement continued. Canada and Britain ”remain on a strong and balanced growth path. The euro area is experiencing an increasingly broad-based upswing. Japan’s recovery is on track and is expected to continue.
”Amid lower energy prices and moderating inflationary pressures, risks have abated,” the statement said.
On another hot-button issue, the G7 called attention to hedge funds, which Germany had wanted to see subjected to tighter regulation given their volatility and capacity to upset the global financial system.
”Given the strong growth of the hedge-fund industry and the instruments they trade, we need to be vigilant,” the statement said.
Germany, the host of the meeting, has repeatedly expressed concern over potential risks to financial stability from hedge funds, highly speculative and aggressive investment instruments that are estimated to manage $1,4-trillion in assets worldwide.
Berlin has long campaigned for increased transparency and even regulation of the largely uncontrolled sector, but it has been forced to scale back its ambitions in face of scepticism in the US and Britain, where most of the funds are based.
In its final communiqué, the G7 said that hedge funds have ”contributed significantly to the efficiency of the financial system”.
”Nevertheless, the assessment of potential systemic and operational risks associated with these activities has become more complex and challenging,” it said.
The G7 in addition urged a resumption in stalled Doha-round trade-liberalisation talks and vowed to resist protectionism.
”We firmly believe that all participants have the responsibility to ensure a successful outcome of the Doha round as it will enhance global growth and contribute to poverty reduction,” the statement said.
The ministers finally recognised energy efficiency as an ”increasingly important issue for our economies as well as emerging-market economies” and called for ”market-based policy measures” such as taxation and emission trading. — Sapa-AFP