China’s surprise decision to revalue the yuan as it tried to contain the stock market turmoil caused the currency to drop the most in 21 years last month, triggering exchange-rate declines elsewhere in the emerging world on concern that a weaker yuan will hurt countries exporting to China. Photo: AFP
China’s surprise decision to revalue the yuan as it tried to contain the stock market turmoil caused the currency to drop the most in 21 years last month, triggering exchange-rate declines elsewhere in the emerging world on concern that a weaker yuan will hurt countries exporting to China. Photo: AFP

G-20 nations pledge to refrain from competitive currency devaluations

Pact sealed after China's central bank governor explains how his country plans to tame market volatility that roiled emerging economies last month

Ankara: Global finance chiefs agreed to avoid getting drawn into currency battles after China set out plans to steer its economy onto a slower path of expansion.

Finance ministers and central bankers from the Group of 20 (G-20) nations pledged on Saturday to “refrain from competitive devaluations" after a two-day meeting in Ankara. That’s the first time the G-20 has used such language since 2013.

That pact was sealed after China’s central bank governor, Zhou Xiaochuan, explained how his country plans to tame stock market volatility that roiled emerging economies last month just as the US is preparing to raise interest rates.

With the MSCI emerging market index down 18% so far this year the final communique cited “recent volatility in financial markets" and the need to monitor potential spillovers.

Chinese finance minister Lou Jiwei told the meeting he expects the country’s economy to grow at about 7% pace for the next four or five years, according to an account on the central bank’s website.

China’s surprise decision to revalue the yuan as it tried to contain the stock market turmoil caused the currency to drop the most in 21 years last month, triggering exchange-rate declines elsewhere in the emerging world on concern that a weaker yuan will hurt countries exporting to China.

Bubble burst

Zhou told his counterparts that his country had had to deal with the bursting of a stock market bubble as he described policymakers’ plans. He said he saw no reason for the yuan to decline further in the long run.

The last time the G-20 issued such a firm statement against currency wars Japan was in the spotlight as its campaign of monetary stimulus pushed the yen to its lowest level against the dollar in about five years. China allowed the yuan to drop after the Shanghai Composite index lost more than 20% from a three-year high in June.

Zhu Jun, head of the international department at the People’s Bank of China, said the currency move wasn’t an attempt to gain an advantage of other exporters and that the government expected the market turbulence to be nearly over.

“We think it’s pretty close to the end," Zhu said. “To some extent the leverage in the market has been decreased substantially and we think there would be no systemic risk."

Fed hikes

US treasury secretary Jacob J. Lew told Chinese finance minister Lou Jiwei in Ankara on Friday that it’s important for China to signal that it will allow market pressures to drive the yuan up as well as down. China should avoid persistent exchange rate misalignments and refrain from competitive devaluation, Lew said, according to a treasury statement.

China’s slowdown comes as the Federal Reserve (Fed) is considering raising US interest rates for the first time in nine years. Fed vice-chairman Stanley Fischer explained the arguments for and against an early increase in US interest rates, Spanish economy minister Luis de Guindos said.

“The Fed has not raised interest rates in such a long time, that it should really do it for good, not give it a try and then have to come back," International Monetary Fund (IMF) chief Christine Lagarde said at a press conference in Ankara. “The IMF thinks that it is better to make sure that data are absolutely confirmed." Bloomberg

Selcan Hacaoglu, Ryan Chilcote, Alaa Shahine, Kevin Costelloe, Mark Deen, Sharon Chen, Raymond Colitt, Alessandro Speciale and Rainer Buergin in Ankara, Andrew Davis in Hong Kong and Malcolm Scott in Sydney contributed to this story.

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