G20 vow to shun currency wars as FM Jaitley calls for strong IMF safety net

The devaluation of the Chinese yuan which triggered a global market sell-off in recent weeks, dominated the G20 meeting in Ankara and in the communique issued at the end of the meeting the 20 big economies, including India and China, committed themselves to refrain from competitive devaluation. The Group of Twenty (G20) called for moving towards market-determined currency rates. The G20 includes the advanced economies such as the USA and Europe as well as the as the BRICS members, together representing around 85 per cent of global GDP.

In his intervention at the G20 meeting, Finance Minister Arun Jaitley pitched strongly for global safety nets to address concerns over volatility in currency and stock markets, a demand that came against the backdrop of the economic shocks triggered by the Chinese devaluation of yuan. He also sought well-designed and quickly-triggered safety nets under IMF (International Monetary Fund) by strengthening of liquidity arrangements by multilateral swap arrangements between member countries to tackle negative spillovers arising from domestic action.

"When compared to the rest of the world, we seem to be on a sound footing. The other positive indication that has now come from the US is that their second quarter growth figures are good and unemployment is going down", he said. Jaitley told PTI that the leaders from across the world, who attended the meeting, took stock of the global economy here besides addressing the set agenda of the scheduled sessions.

In an answer to a question, Jaitley said, "The Fed hike remains a matter which the US will decide later this month. But, according to me, whatever situation emerges, that would be only a transient phase and therefore our response is that we have to strengthen our own real economy". Jaitley said the G20 meeting has taken place at a time when the global economy is witnessing unpredictable growth prospects.

Chinese Finance Minister Lou Jiwei told the G20 that China's fiscal spending will grow faster than expected this year. A "new normal" status and the growth rate of economy is predicted to be around 7 per cent in the coming 4 to 5 years, he said. Zhou Xiaochuan, China's Central Bank governor pointed out in a written joint statement that the renminbi (yuan) is not on course for a long-term devaluation.

The Shanghai Composite Index has tumbled 39 per cent since June 12, when the gauge reached its highest level in more than seven years. China's surprise decision to revalue the yuan as it tried to contain the market turmoil caused the currency to drop the most in 21 years last month. "But there is no substantial transformation in the real economy of China and large surplus still remains in the foreign trade of China, so there is no foundation that remnimbi will keep devaluing for a long term," Zhou said.