The U.S. Treasury Department’s top international official urged Group of Seven economies to avoid targeting exchange rates and let markets set currency levels, calling for full and timely data on the scale of nations’ interventions.
“The G-7 pledged that exchange rates should float freely, except in rare circumstances where excess volatility or disorderly movements might warrant cooperation,” Lael Brainard, the undersecretary for international affairs, said at a conference in Washington today. “In addition, the G-7 members committed to avoid targeting exchange rates and to orient domestic monetary and fiscal policy toward meeting domestic objectives, using only domestic instruments.”
Global finance chiefs at a Group of 20 meeting in Moscow last month signaled Japan has scope to keep stimulating its stagnant economy as long as policy makers cease publicly advocating a sliding yen. Japanese officials in Moscow denied driving down their currency, arguing that its weakness was a byproduct of their effort to revive their economy, which would benefit trading partners.
The G-7 must adhere to its pledges “both in word and in action,” Brainard said in prepared remarks.
The yen has dropped about 16% against the dollar in the past six months, making it the biggest decliner among the Group of 10 currencies tracked by Bloomberg. The top gainers over that period have been the Swedish krona, New Zealand’s dollar and the euro.
For global demand to strengthen, the G-20 nations must “follow through on their recent new commitment not to target exchange rates for competitive purposes,” Brainard told the National Association for Business Economics conference.
“Fulfilling the commitment to shift toward greater flexibility will require significantly greater transparency, with the timely and full publication of data on the scale of intervention in the market, including more rapid disclosure of activity in the forward market,” she said.
Central banks from New Zealand to Norway have indicated a readiness to intervene or cut interest rates to weaken their currencies if necessary, as the U.S. and Japan buy domestic assets to help revive their economies -- moves that have held back the dollar and yen.
In the speech, Brainard defended so-called quantitative easing policies as consistent with “a broad global recovery in output, jobs and trade.”
“With global growth weak, it is vitally important that the growth strategies in the world’s largest economies be mutually compatible,” she said.
Brainard also said China will need to make more progress on structural reform and “reinvigorate the move to market determination of the exchange rate and interest rates.”
With new leadership forming, “China will need to do more than continue meeting rising expectations inside China, and at the same time bring China’s conduct in the global trade and financial system more into alignment with international expectations,” she said.