G7 Moves to Prevent Currency Wars

February 12, 2013 by Douglas A. McIntyre

World currencyThe Group of Seven nations have agreed to provisions to prevent currency wars. The prospect that countries might protect their trade via currency valuation manipulation has become greater recently.

The drawback to the announcement is that the G7 nations are the old developed economies of the United States, Japan, Germany, France, Italy, Canada and the United Kingdom. That leaves action by China, Brazil, Russia and India in particular out of the mix. Each has trade issues that might tempt it to view currency valuation as a weapon.

In a statement issued by the U.K. Treasury on behalf of the group:

We, the G7 Ministers and Governors, reaffirm our longstanding commitment to market determined exchange rates and to consult closely in regard to actions in foreign exchange markets. We reaffirm that our fiscal and monetary policies have been and will remain oriented towards meeting our respective domestic objectives using domestic instruments, and that we will not target exchange rates. We are agreed that excessive volatility and disorderly movements in exchang [sic] rates can have adverse implications for economic and financial stability. We will continue to consult closely on exchange markets and cooperate as appropriate.

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