The world’s leading finance ministers issued strong hints during a meeting of the G7 on Friday that there is growing concern about the sharp decline of the US dollar on foreign exchange markets.
Since the last G7 meeting in Tokyo in February “there have been at times sharp fluctuations in major currencies,” and “we are concerned about their possible implications for economic and financial stability,” G7 members said in an official communique.
The finance ministers and central bank governors of the G7 — which groups Canada, France, Germany, Italy, Japan, the UK and the US — reaffirmed their “shared interest in a strong and stable international financial system.”
PHOTO :AFP
“We continue to monitor exchange markets closely, and cooperate as appropriate,” the G7 statement said.
Finance ministers did not explicitly refer to the ailing dollar, but analysts said it was clear their official statement reflected growing worries about the rapid depreciation of the dollar and its impact on the global economy.
The sharpened language in the G7 communique “reflects an accurate analysis of what has occurred since the last G7,” French Finance Minister Christine Lagarde said, speaking in French.
The president of the European Central Bank, Jean-Claude Trichet, sidestepped addressing the dollar directly, but said “a poem speaks for itself,” before adding “I won’t say anymore.”
European officials have not stopped complaining about the sharp appreciation of the euro which they say gives an unfair advantage to the US, as they seek to prod the US to do more to strengthen the dollar.
The euro smashed the US$1.50 mark for the first time in February, and was trading around US$1.5805 on Friday afternoon.
The head of the bloc of EU nations using the single currency of the euro, Jean-Claude Juncker, met US President George W. Bush on Wednesday and discussed currencies in private.
But European angst over the weak dollar has yet to have an effect on the US who has so far only listened to concerns.
The US is in a worsening spot, however, because the US economy has slowed markedly in recent months and many economists believe it fell into a recession during the first quarter.
US economic momentum has been blunted by a persistent housing downturn and a related credit crunch which has roiled global markets.
The US government has not intervened to prop up the dollar and has given little hope to European officials that it will do so anytime soon.
Addressing reporters’ questions about the foreign exchange markets and the weakened dollar, US Treasury Secretary Henry Paulson said G7 officials always debate currencies.
“I reiterated in very strong terms our commitment to a strong dollar,” he said of his participation in the G7 finance meeting, adding that ministers also discussed other global currencies and their values.
The US dollar has weakened markedly on foreign exchange markets in recent months, partly due to aggressive Federal Reserve rate cuts.
The G7 communique welcomed “China’s decision to increase the flexibility of its currency, but in view of its rising current account surplus and domestic inflation, we encourage accelerated appreciation of its effective exchange rate.”
Some US economic commentators accuse China of keeping its currency artificially undervalued to support China’s ballooning trade surplus with the US.
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