ANKARA — Global finance chiefs agreed to avoid getting drawn into currency battles after China set out plans to steer its economy onto a slower path of expansion. Finance ministers and central bankers from the Group of 20 nations pledged Saturday to “refrain from competitive devaluations” after a two-day meeting in Ankara. That's the first time the G20 has used such language since 2013. That pact was sealed after China's central bank governor Zhou Xiaochuan explained how his country plans to tame stock market volatility that roiled emerging economies last month just as the US is preparing to raise interest rates.
With the MSCI emerging market index down 18% so far this year the final communique cited “recent volatility in financial markets” and the need to monitor potential spillovers.
Chinese Finance Minister Lou Jiwei told the meeting he expects the country's economy to grow at about 7% pace for the next four or five years, according to an account on the central bank's website.
China's surprise decision to revalue the yuan as it tried to contain the stock market turmoil caused the currency to drop the most in 21 years last month, triggering exchange-rate declines elsewhere in the emerging world on concern that a weaker yuan will hurt countries exporting to China.
Zhou told his counterparts that his country had had to deal with the bursting of a stock market bubble as he described policy makers' plans. He said he saw no reason for the yuan to decline further in the long run.
The last time the G20 issued such a firm statement against currency wars Japan was in the spotlight as its campaign of monetary stimulus pushed the yen to its lowest level against the dollar in about five years. China allowed the yuan to drop after the Shanghai Composite index lost more than 20% from a three-year high in June.
Zhu Jun, head of the international department at the People's Bank of China, said the currency move wasn't an attempt to gain an advantage of other exporters and that the government expected the market turbulence to be nearly over.
“We think it's pretty close to the end,” Zhu said. “To some extent the leverage in the market has been decreased substantially and we think there would be no systemic risk.”
US treasury secretary Jacob J. Lew told Chinese Finance Minister Lou Jiwei in Ankara on Friday that it's important for China to signal that it will allow market pressures to drive the yuan up as well as down. China should avoid persistent exchange rate misalignments and refrain from competitive devaluation, Lew said, according to a treasury statement.
China's slowdown comes as the Federal Reserve is considering raising US interest rates for the first time in nine years. Vice Chairman Stanley Fischer explained the arguments for and against an early increase in US interest rates, Spanish economy minister Luis de Guindos said.
“The Fed has not raised interest rates in such a long time, that it should really do it for good, not give it a try and then have to come back,” International Monetary Fund chief Christine Lagarde said at a press conference in Ankara. “The IMF thinks that it is better to make sure that data are absolutely confirmed.
Meanwhile, Islamic finance is increasingly important in the global economy and needs to be better integrated into the international financial system, German Finance Minister Wolfgang Schaeuble told a meeting of the Group of 20 leading economies on Saturday.
Islamic finance, which has its core markets in the Middle East and Southeast Asia, follows religious principles that ban interest and shun outright speculation, and as such is seen as an alternative to interest-based banking.
“We all have a better understanding of the risks and role of Islamic finance now,” Schaeuble, reporting on the G20's Investment and Infrastructure Working Group, told G20 finance ministers and central bankers.
The World Bank, Islamic Development Bank and countries including Saudi Arabia and South Africa had shared their practical experiences with asset-backed financing and Islamic finance in particular over the past year, he said.
“Islamic finance is growing in importance for the global economy. It is therefore important that international financial institutions consider questions related to integrating Islamic finance into global finance,” Schaeuble said, according to a text of his speech obtained from the German delegation.
Islamic finance holds systemic importance in countries such as Kuwait and Qatar, and has made wider gains buoyed by support from governments such as Pakistan and Turkey.
An estimated $800 billion worth of infrastructure financing will be needed each year in Asia alone over the next decade, according to the Asian Development Bank. – Agencies
