The G20 nations have agreed to move “more rapidly” towards flexible exchange rates in a draft action plan for growth that adopts stronger language on currency rates than previous statements by the club of leading economies.
The draft, which went to G20 leaders for final approval yesterday, also mentions China by name for the first time in the context of greater currency flexibility.
Beijing has long faced pressure from Western nations to allow its yuan currency to float more freely, but has refused to bow to those demands.
“We affirm our commitment to move more rapidly towards market determined exchange rate systems and enhance exchange rate flexibility to reflect underlying fundamentals and refrain from competitive devaluation of currencies,” the draft said.
It welcomed China’s determination to increase exchange rate flexibility “consistent with underlying market fundamentals” as well as recent changes to Russia’s currency regime.
G20 officials from emerging economies said the language on currencies could well be diluted in the final version of the document.
It would be the first time the G20 has published an “action plan” with specific national commitments to boost growth and rebalance the global economy, a drive that started at the height of the global financial crisis.
The plan also included a six-point list of measures for strengthening medium-term growth and detailed steps that individual G20 countries pledge to undertake.
The US, for example, committed in the draft to put its debt-to-GDP ratio on a declining path no later than the middle of the decade.
Emerging market economies and Germany promised to implement measures to boost domestic demand-led growth.
French President Nicolas Sarkozy, who faces a tough re-election campaign next year, had hoped to use his G20 presidency to pursue an ambitious rethink of the global monetary system.
However, he has had to rein in his ambitions as the eurozone’s debt crisis has blown up, threatening to plunge the global economy back into recession.
The European Central Bank cut interest rates on Thursday for the first time in more than two years, saying the 17-nation currency bloc could suffer a “mild recession” in the latter part of the year. A day earlier, the US Federal Reserve slashed its forecasts for growth in the world’s largest economy.
“In emerging markets, there are also clear signs of a slowing in growth as developments in advanced economies begin to weigh on these countries,” the draft said.
“In some emerging market economies, financial stability and overheating risks remain,” it added. “The lack of exchange rate flexibility in some countries limits policy options to deal with these risks.”
The G20 also reprised its usual line on currency volatility, saying that “disorderly movements in exchange rates have adverse implications for economic and financial stability.”
In their final communique, G20 leaders were also expected to call for a bolstering of the Financial Stability Board, a task force set up at the height of the global financial crisis to look at global financial regulations.