PARIS, Feb 19 (Reuters) - G20 finance ministers highlighted the need to combat exchange rate volatility and misalignment but dropped a previous appeal against competitive devaluations in a communique published after talks on Saturday.
The communique said G20 countries were committed to enhanced exchange rate flexibility and that the international monetary system should be improved to avoid disruptive swings in capital flows and exchange rates. [ID:nLDE71I0FN]
It was issued after the first major G20 meeting under French chairmanship, where China resisted attempts to make exchange rates one of a set of indicators to be used to measure economic imbalances. [ID:nLDE71I02C]
"There was no indication by China that they intended to be more flexible with respect to their currency immediately," said Canadian Finance Minister Jim Flaherty. "But ... this isn't just about exchange rates. This is about growing global imbalances."
As often happens at such meetings, what G20 countries cannot collectively agree to put in their joint communique gets said at news conferences.
U.S. Treasury Secretary Timothy Geithner repeated Washington's complaint about China's currency.
"China's currency remains substantially undervalued, and its real effective exchange rate -- the best measure to judge its currency against all of its trading partners -- has not moved much in this latest period of exchange rate reform," he said.
A meeting of G20 finance ministers in Gyeongju, South Korea, last Oct. 23, went somewhat further in its encouragement of exchange rate flexibility -- decrying competitive currency devaluations -- although it did not explicitly mention China by name.
France, which is pressing in more general terms for a reform of a dollar-dominated global monetary order over the longer term announced during the Paris talks that China had agreed to hold a seminar on the issue in the last three days of March, in the coastal city of Shenzhen.
Following is what Saturday's communique said about exchange rates compared with the statement from the G20 finance ministers' last meeting in October in South Korea:
PARIS COMMUNIQUE EXCERPTS:
"Our main priority actions include implementing medium term fiscal consolidation plans differentiated according to national circumstances in line with our Toronto commitment, pursuing appropriate monetary policy, enhancing exchange rate flexibility to better reflect underlying economic fundamentals and structural reforms, to sustain global demand, increase potential growth, foster job creation and contribute to global rebalancing.
The international monetary system (IMS) has proven resilient, but vulnerabilities remain, which raise the need to improve it in order to ensure systemic stability, promote orderly adjustment, and avoid disruptive fluctuations in capital flows, disorderly movements in exchange rates -- including advanced economies with reserve currencies being vigilant against excess volatility -- and persistent misalignment of exchange rates. Today we agreed on a work program aimed at strengthening the functioning of the IMS, including through coherent approaches and measures to deal with potentially destabilizing capital flows, among which macro-prudential measures, mindful of possible drawbacks; and management of global liquidity to strengthen our capacity to prevent and deal with shocks, including issues such as Financial Safety Nets and the role of the SDR."
GYEONGJU COMMUNIQUE EXCERPTS:
"We are mindful of the risks of synchronized adjustment on the global recovery and of the risks that failure to implement consolidation, where immediately necessary, would undermine confidence and growth;
- continue with monetary policy which is appropriate to achieve price stability and thereby contributes to the recovery;
- move towards more market determined exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies.
Advanced economies, including those with reserve currencies, will be vigilant against excess volatility and disorderly movements in exchange rates.
These actions will help mitigate the risk of excessive volatility in capital flows facing some emerging countries." (Editing by Mike Peacock)