G7 chiefs serve up warmed-over forex volatility comments

A cargo ship operated by Taiwan-based Yang Ming Marine Transport Corp, far right, is positioned for unloading by tug boats on Tuesday at the Port of Tacoma in Tacoma, Washington. The US trade deficit improved for a second month as oil imports fell sharply and the politically sensitive deficit with China narrowed to its lowest point in nine months. The gap between what the US sells abroad and what it imports dipped by 0.7 percent to US$58.4 billion in February, the US Commerce Department reported on Friday. PHOTO: AP

Top finance chiefs from the world's seven richest nations served up warmed-over commentary on currency volatility on Friday, but issued a strong call for a global accord to boost free trade.

G7 finance ministers and central bank governors at a meeting here in addition threw their weight behind an IMF reform drive and pledged to monitor developments in speculative hedge fund markets.

The G7, as it had done in its last statement in early February, avoided specific mention of the sliding Japanese yen, a trend that has unsettled eurozone officials who fear it will erode eurozone export earnings and dampen growth.

The ministers instead reiterated calls on China to allow the yuan to appreciate more rapidly.

In fact the text adopted by top finance officials from Britain, Canada, France, Germany, Italy, Japan and the US contained the same wording as the previous statement, released after their talks in Germany in February.

They described excessive volatility on foreign exchange markets as "undesirable" and said that in "emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments can occur."

"Greater exchange rate flexibility and stronger domestic demand in China are critical parts of rebalancing, and it is crucial that China move now with greater urgency."

Henry Paulson, US treasury secretary

US Treasury Secretary Henry Paulson said "greater exchange rate flexibility and stronger domestic demand in China are critical parts of rebalancing, and it is crucial that China move now with greater urgency."

The US does not share European disquiet over the sliding yen, which has fallen 13.5 percent against the euro since May last year compared with 9 percent against the US dollar, and insists that an undervalued Chinese yuan is the principal threat to currency stability.

The G7 chiefs also voiced support for an ongoing overhaul aimed at preserving the "relevance and legitimacy" of the IMF.

"We agree to push forward the ambitious package of bold and fundamental reforms in order to retain the IMF's relevance and legitimacy," they said.

They added that the reform push, the first stage of which was approved by the IMF at a meeting in Singapore last September, should ensure that dynamic emerging market economies are better represented in the 185-member body.

The ministers finally pledged on Friday to "monitor" speculative hedge funds and said strengthening discipline over such instruments would promote global financial stability.