G20: Focus on transparency
Endless speculations about a looming devaluation of the euro and the dollar and also of the yen and the yuan have prompted many politicians to consider introducing currency exchange controls. When, in November 2012, Japan artificially lowered the yen by 20% in order to shore up its economy and boost exports, France and Germany began talking about the threat of a "currency war". At one of their recent meetings, the G20 finance ministers and central bank chiefs pledged to refrain from competitive currency devaluations, yet have stopped short of rebuking Japan.
Currency wars hamper stable growth, something the entire world economy so desperately needs today, Deutsche Bank economist in Russia Yaroslav Lisovolik said in an interview. "Competitive currency devaluations sharply impede global post-crisis recovery. Actually, here we have protectionism. By imposing currency controls, countries shut themselves off from each other. This causes a significant drop in international trade volumes and economic growth rates. Governments must not devaluate their currencies at the expense of other countries".
Developing nations, particularly the BRICS (Brazil, Russia, India, China and South Africa) strongly oppose artificial devaluations of currencies as a stimulus measure to boost economic growth. But a certain freedom of action is necessary. The Eurozone crisis is glaring proof of the inefficiency of total control, Yevgeny Nadorshin, chief economist at the AFK Sistema, told the Voice of Russia. "Considering the current problems besetting the Eurozone, now in Greece and now in Portugal, they are not easy to resolve, especially when a wave of problems hits large economies such as Italy or Spain. Debates are growing tougher, making it harder for the European economy to recover. The common institutions and instruments of the Eurozone, including the single currency, have proven to be inefficient. Efforts to improve them are progressing slowly: one step forward, two steps backwards".
Another dangerous trap is the so-called "quantitative easing", or a non-traditional monetary policy when central banks start buying up financial assets to pump a certain amount of cash into the economy. It is seen as the last resort when politicians, though having despaired of all other stimulus measures, nevertheless want to show that the government "cares". Yaroslav Lisovolik warns about the negative impact of such policy, which manifests itself in inflation and stock bubbles in other economies.
"Capital that comes and goes quickly is a destabilizing factor. At present, the world markets face US promises to curtail quantitative easing and remove excess liquidity from the market. Many investors fear capital outflows from developing markets. This puts pressure on the ruble and other currencies. Here double standards are too apparent to be unnoticed: on the one hand there is a calm attitude to the United States, whose Fed Reserve has been pumping as many as $85 trillion a month into the economy, while on the other hand there is Cyprus which was ostracized and denied a $10 trillion bailout."
The policy of quantitative easing as such evokes no major reproof from the G20 so far. Russian Finance Minister Anton Siluanov reflected a common opinion when he said that "quantitative easing for stagnating economies is justified."
The September G20 summit in St. Petersburg will focus, among other things, on universal and understandable criteria for determining when, where and how such stimulus methods may be used. But, as Mr. Siluanov said, "predictability remains a key issue".