G7 nations seek to allay fears over currency wars

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THE Group of Seven leading industrial nations, which includes the United States, Japan and Germany, sought yesterday to defuse escalating tensions about an impending "currency war," warning that volatile movements in exchange rates can adversely hit the global economy.

There have been increasing concerns recently that governments are manipulating their exchange rates through their domestic economic policies in order to get an edge over others. A lower currency can make a country's exports cheaper, thereby boosting growth.

In a statement published yesterday on the Bank of England website, the G7 finance ministers and central bankers insisted they remained committed to exchange rates driven by the market - not government policy.

"We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability," said the G7, which also counts Canada, France, Italy and current president, the United Kingdom, among its members.

The statement comes ahead of a meeting in Moscow at the weekend of finance ministers from the world's top 20 industrial and developing countries. In light of the recent swings in the foreign exchange markets, notably relating to the Japanese yen, currency issues were expected to feature heavily during the Group of 20 discussions.

Much of the recent volatility in foreign exchange markets has been a by-product of developments affecting the Japanese yen, which dropped yesterday to its lowest level against the dollar since May 2010. Though the Japanese government has not directly intervened to get the value of the yen down, it has set in motion a series of economic policies, such as a higher 2 percent target for Japanese inflation that many in the markets think will lead to more money being created in Japan.

Though Japan insists it's not targeting any particular exchange rate, there are fears that the benefits the country will potentially enjoy from the lower yen may force others to start using their currencies as an economic weapon.

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