ISTANBU: G7 finance chiefs on Saturday warned “excess volatility” on currency markets was hurting economic stability and said a more flexible exchange rate in China would promote world economic growth.
“Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability,” the finance chiefs of the world’s richest economies said in a statement following talks in Istanbul.
European finance ministers put pressure on the United States this week ahead of the talks to defend the dollar, which has weakened considerably as a tentative global economic recovery has taken shape. The G7 finance chiefs also stressed the importance of China’s policy.
“We welcome China’s continued commitment to move to a more flexible exchange rate, which should lead to continued appreciation of the renminbi in effective terms and help promote more balanced growth in China and in the world economy.”
The Chinese currency is pegged to a basket of currencies and strictly controlled by the nation’s foreign exchange authorities.
The renminbi’s nominal effective exchange rate appreciated by 12.66 percent last year, compared to a 1.69 percent rise in 2007, economists say.
The International Monetary Fund has also stressed that China should allow its currency to appreciate in order to help rebalance the world economy.
“China has an interest in reorienting toward domestic demand. If it does this, it has to lower external demand. The way to do this is to change its exchange rate,” IMF chief economist Olivier Blanchard said earlier. The global economy is recovering but “fragile,” and officials must be careful not to withdraw stimulus too soon, the group said on Saturday, according to a draft communique.
“We are monitoring economic developments to ensure that the unwinding of supportive measures does not occur prematurely, before the global recovery has clearly taken hold,” the draft statement prepared by G7 deputies and obtained by Reuters said.
“In recent months we have started to see encouraging signs of a global economic recovery and continued improvement in financial market conditions. However, there is no room for complacency,” the draft said.
“The situation remains fragile, particularly as regards labor market conditions.”
The statement also expressed support for measures to shore up the global financial system announced by the Group of 20 developed and emerging nations in Pittsburgh last week.
“We strongly support the international commitment to increase the quality and quantity of capital by end-2012 and fully endorse the reform of compensation practices,” the draft statement said, referring to the banking sector.