Saturday, 18 March 2017

G20 finance heads to repeat FX assurances, no deal yet on rejecting protectionism

In World Economy News 18/03/2017

The world’s financial leaders will renounce competitive devaluations and warn against exchange rate volatility, but they have not yet found a common stance on trade and protectionism, a draft statement of their meeting in Germany showed on Friday.
The finance ministers and central bank governors of the world’s 20 largest economies may struggle to present a united front on protectionism now that the administration of U.S. President Donald Trump has begun considering imposing a border tax that would drive up the cost of imports.
“It’s about the right wording, it’s about the openness of the world trade systems in the final communique,” German Finance Minister Wolfgang Schaeuble told reporters before the G20 meeting.
U.S. Treasury Secretary Steven Mnuchin said on Thursday in Berlin that the Trump administration had no desire to get into trade wars, but certain trade relationships need to be re-examined to make them fairer for U.S. workers.
A draft G20 communique seen by Reuters makes no reference to trade and protectionism issues, breaking with a decade-old tradition of G20 statements which have used various formulations over the years to endorse free trade and reject protectionism.
G20 officials said the U.S. was ready to accept a phrase backing “open and fair” trade, given that the meaning of “fair” was open to interpretation. Europe was keen on adding trade should be “rules-based”, meaning subject to rules of the World Trade Organization (WTO).
European delegations have also expressly rejected protectionism.
Schaeuble, whose country holds the rotating presidency of the G20 this year, has even floated the possibility in an interview with Reuters that the issue of trade might be left out of the communique altogether to avoid a clash.
But other G20 countries said they wanted the statement to deal with trade.
The latest G20 draft communique, which may still change and is to be published only on Saturday, reinstated the phrases used in past years in communiques on foreign exchange markets that were absent from the earliest version.
“We reiterate that excess volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability,” the draft said.
“We will consult closely on exchange markets. We reaffirm our previous exchange rate commitments including that we will refrain from competitive devaluations and we will not target exchange rates for competitive purposes,” it said.
It also said that monetary policy will keep supporting growth and price stability but cannot alone lead to balanced economic growth, repeating the G20 stance from last year.
European delegations will also argue against Trump’s plans to roll back U.S. legislation, called the Dodd-Frank Act, introduced to prevent a financial crisis like that one in 2008.
“These financial regulations are of fundamental importance,” French Finance Minister Michel Sapin told a French daily in an interview to be published on Saturday.
“Those who say that the situation now is much better and that one can therefore return to the arrangements of the past – which is sometimes advocated on the other side of the Atlantic – must be very careful,” he said.
“The world is not immune to a new financial crisis, especially since everything has not been regulated, notably the famous shadow banking,” he said.
But asked if he is afraid that the United States might roll back financial market regulation, Germany’s Schaeuble said: “This concern is not big.”

Source: Reuters (Additional reporting by Michael Nienaber, Joseph Nasr, David Lawder and Yann Le Guernigou in Paris; writing by Jan Strupczewski; Editing by Balazs Koranyi and Hugh Lawson)