The ministers of finance and the central bankers of the 20 largest industrialized and emerging economies, meeting in Moscow last weekend, just steps from the Kremlin, declared they will refrain from "competitive devaluations," or so called currency wars. G20 members confirmed their commitment to "market determined exchange rate systems and exchange rate flexibility."
Concern about competitive devaluations was first voiced in 2010 by the minister of finance of Brazil, Guido Mantega. At the time, the accommodative monetary policies adopted by the advanced economies to reactivate their economies were generating destabilizing capital flows into emerging economies.
Now, the concern is caused by the Japanese government's adoption of measures to fight deflation, which in the last three months led to a 15 percent devaluation of the yen against the U.S. dollar.
The final statement issued by the G20, following the lead of the seven most advanced members, declared that "we will not target our exchange rates for competitive purposes." Also, in response to the concerns of emerging market economies, the statement said that "we commit to monitor and minimize the negative spillovers on other countries of policies implemented for domestic purposes."
In other words, the G20 has differentiated the exchange rate consequences of monetary policies to support economic recoveries, which are acceptable. By contrast, competitive devaluations, adopted to gain competitive advantages, remain unacceptable. The managing director of the International Monetary Fund, at a press conference after the Moscow meeting, said that "talk about currency wars is overblown."
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Isaac Cohen is an international analyst and consultant, a commentator on economic and financial issues for CNN en Espaņol TV and radio, and a former director, UNECLAC Washington Office.
