By Anna Willard
PARIS, Jan 21 (Reuters) - France, wary of trade competition via currency depreciation, complained on Wednesday about a fall in Britain's exchange rate, and a source said the issue would be raised when Group of Seven economic powers meet in Rome next month.
The pound has lost 20 percent in value versus the euro over the past year and even more against both the dollar and yen, raising fears in Paris at least that London is happy with the fall because it gives British companies an edge in world markets at a time when the economy is suffering.
French Economy Minister Christine Lagarde said she wished to see the Bank of England do something more to support the pound, perhaps because BoE chief Mervyn King has not shied away from highlighting that British exporters benefit from its weakness.
"I note the Bank of England is doing what it can, but its monetary policy and management of rates ... have not been particularly efficient for supporting the currency a bit more," Lagarde told a parliamentary hearing. "It would be in their interest to support it a bit."
Britain's immediate response came from a Treasury Department official who stuck to a long-standing line that the Bank of England's job was to conduct a monetary strategy that addresses inflation concerns, not currency levels.
"The Bank of England's policy is to target inflation, not the exchange rate," the official told Reuters.
Britain has traditionally gone out of its way to avoid any debate on exchange rates, including at the regular meetings of the G7 club, which in addition to Britain comprises the United States, Japan, Canada and the three euro currency countries of Germany, France and Italy.
London could now come under more intense pressure from them, however, because most of them are in recession, too, and perhaps keen to ensure that no country exports its way out of trouble with a cheap currency at the expense of others.
The G7 source, who spoke on condition of anonymity, made it clear the intention, so far at least, was not to try to sway the currency markets via verbal intervention, not to mention direct currency market incursions by central banks.
But the source, who has first-hand knowledge of preparation for a meeting of G7 finance ministers, on Feb. 14 in Rome, said the drop in the pound would have to be discussed this time in addition to more regular exchange rate issues.
"The pound is depreciating. It is obviously a problem for Europe," said the source.
Referring to the next G7 meeting in Rome. the source said: "Normally we talk about the dollar, yen and the euro, but this time we'll be talking about the pound as well."
In the past year, Britain's pound has lost around 30
percent versus the dollar
Such depreciation gives British exporters by definition an edge in price competition with rivals from other countries.
"We need to talk with the UK about the depreciation of the pound, which is a problem for us," said the source, who noted that competition from China via a cheap currency remained a chief concern, but also the temptation for others to do the same, principally but not solely in emerging market countries.
Japan, an export-driven economy that has a hard time shaking off a reputation for intervening in the markets to keep the yen low, has seen its currency appreciate recently and not just against the British currency.
The G7 source said there were constant rumours of this kind of intervention but the idea right now, with recession across the board in the G7 club, to avoid making a bad thing worse by competing at others' expense through exchange rates.
Right now, the source said, volatility in exchange rates was perhaps more of a concern than trends in individual currencies and that on the latter the situation was not serious enough for now to merit even verbal intervention.
"If you do verbal intervention it's because you think there is a crisis situation. We're not at that point yet." (Additional reporting by Sumeet Desai; Writing by Brian Love; Editing by Leslie Adler)