The G7 last night sought to reaffirm its centrality on
global exchange rate issues at a time when the expanded G20
grouping is moving to centre stage on economic policy.
We continue to monitor exchange markets closely,
the G7s communique, issued in Istanbul, said. It welcomed
Chinas continued commitment to move to a more
flexible exchange rate.
Exchange rate issues could be discussed in both the G7 and
G20, Canadian finance minister James Flaherty told Emerging
Asked whether foreign exchange interventions would continue
to be decided by the G7, he said that the most important
central banks are in the G7 countries.
The G20 grouping of rich nations and key emerging markets,
during its summit in Pittsburgh last month, pointedly failed to
talk about global exchange rate issues. The exchange rate
issue was the great absent at Pittsburgh, said Christine
Lagarde, the French finance minister at a G7 press briefing
It was announced at the G20 summit that the grouping would
replace the G8 (G7 plus Russia) as the premier council on
global economic governance.
The US has called for a revaluation of the Chinese currency
to boost domestic consumption and correct global imbalances,
while China retorts that high US government debt has triggered
volatility in the dollar. Analysts fear that reluctance to
address exchange rate problems threatens to derail sustainable
economic recovery and it is now unclear which global
forum will debate the issue.
US treasury secretary Timothy Geithner last night
sidestepped clarifying the respective roles of the two
political groupings on exchange rate issues.
The G20 has become central to the global economy,
reflecting how much the balance of global power had changed.
But there are going to be issues in the future where the G7 can
co-operate on the broad shift of geometry in the system,
he said in response to a question by Emerging Markets at a
press briefing in Istanbul last night.
Lagarde said: We [the G7] will continue to meet. The
question is to know whether we will have to issue a
communiqué every time.
It had been suggested that the G7 would step back on the
issue of exchange rates, and might not even issue a communique
after its meeting this weekend. When the document came, it
acknowledged the growing importance of the G20, and said the G7
would cooperate with the expanded grouping on a range of
These included coordinated exit strategies,
strengthening financial systems, developing a new framework for
strong, sustainable and balanced growth, and
reforming and reviewing the resources, mandate and
governance of the international financial
In comments on the health of the world economy, Geithner
said yesterday: We are seeing signs of recovery sooner
and stronger and more broad-based than we had expected.
But he warned that we are still only in the early stages
Unemployment is unacceptably high. The financial
sector remains damaged. Conditions for a sustained recovery led
by private demand are not yet fully established. We face
challenging tasks ahead.
Policymakers must not step on the brakes too
soon in withdrawing economic stimulus, Geithner stressed
We are not yet in a position where it would be prudent to
withdraw fiscal and monetary policy support.