G7 seeks to defuse currency war fears

The Associated Press, Brussels | Business | Tue, February 12 2013, 10:15 PM

The Group of Seven leading industrial nations, which includes the U.S., Japan and Germany, sought Tuesday to defuse escalating fears of an impending "currency war", warning that volatile movements in exchange rates could adversely hit the global economy.

There have been increasing concerns around the world that governments are manipulating their exchange rates through their domestic economic policies in order to get an edge over others. A lower currency can make a country's exports cheaper, thereby boosting growth.

In a statement published Tuesday on the Bank of England website, the G-7 finance ministers and central bankers insisted they remained committed to exchange rates driven by the market — not government policy — and would consult closely when it comes to sharp movements in foreign currency markets.

"We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability," said the G-7, which also counts Canada, France, Italy and current president, the U.K., among its members.

The statement comes ahead of a meeting in Moscow at the weekend of finance ministers from the world's top 20 industrial and developing countries. In light of the recent swings in the foreign exchange markets, notably relating to the Japanese yen, currency issues were expected to feature heavily during the Group of 20 discussions in the Russian capital.

Much of the recent volatility in foreign exchange markets has been a by-product of developments affecting the Japanese yen, which dropped Tuesday to its lowest level against the dollar since May 2010. Though the Japanese government has not directly intervened to get the value of the yen down, it has set in motion a series of economic policies, such as a higher 2 percent target for Japanese inflation that many in the markets think will lead to more money being created in Japan.