After intense discussions for over two days the Finance Ministers and Central bank heads of G20 countries agreed to refrain from devaluing their currencies to increase international market competitiveness. G20 countries comprises of the world’s 20 largest economies. A statement released by G20 said, “We will refrain from competitive devaluations, and resist all forms of protectionism.”
The pact was agreed after China’s Central Bank governor Zhou Xiaochuan explained how China plans to tackle the stock market volatility that has impacted the global markets. The move also comes at a time when the US Federal Reserve is planning to increase interest rates for the first time in nine years. China, recently devalued the yuan after its markets witnessed one of its worst ever crashes in recent times.
While many countries continue to be suspicious about this move by China believing it is being done to boost its exports, China defended the move saying it wasn’t aimed at gaining an advantage over other exporters and that the government believes the market turbulence is nearly over. “We think it’s pretty close to the end. To some extent the leverage in the market has been decreased substantially and we think there would be no systemic risk,” said Zhu Jun, head of the international department at the People’s Bank of China.
The statement released by G20 also spoke about the possibility of exploring alternative capital instruments in recognition of major financing needs for long term investments. The members also reaffirmed the resolve to finalise the remaining core elements of the global financial reform agenda this year. Expressing its disappointment with the continued delay in taking forward the 2010 IMF Quota and Governance Reforms, the communiqué said, “We reaffirm that their earliest implementation is essential for the credibility, legitimacy and effectiveness of the Fund and remains our highest priority. We strongly urge the United States to ratify the 2010 reforms as soon as possible. We reaffirm our commitment to maintaining a strong, well-resourced and quota-based IMF.”
A detailed discussion to promote an enabling global economic environment for developing countries to pursue their sustainable development agendas took place. It included strengthening of policy dialogue and scaling up of technical assistance efforts to help developing countries build necessary institutional capacity as specified in the Addis Ababa Conference on Financing for Development (FFD).
The decision to refrain from devaluing global currencies comes at a time when the volatility of global markets is high and the decision is expected to reduce currency wars and bring stability in the currency markets.
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