Countries must avoid competitive devaluation,says Pranab

Finance Minister Pranab Mukherjee said countries should refrain from competitive devaluation of currencies.

Even as the US eggs on China to appreciate the yuan in line with market forces,Finance Minister Pranab Mukherjee today said countries should refrain from competitive devaluation of currencies. This will help rebalance a world that is still struggling to come out of woods after the 2008 global financial crises.

Addressing the G-20 ministerial on Framework for Strong,Sustainable and Balanced growth,Mukherjee said countries should cooperate in making their exchange rates reflect economic fundamentals. He,however,added,the world can not afford to have sudden movements or complete standstills on this front as both will be disruptive. Some balance needs to be found.

The US has been putting pressure on China for a while now to let the yuan appreciate,but China is resisting the move because it hurts its exports. US Senate Finance Committee Chairman Max Baucus had earlier said Chinas currency is undervalued by 20-40 per cent and a currency correction would could create up to five lakh new jobs in the US. The US has been arguing that the undervaluation of the yuan has given Chinese producers an unfair trade advantage.

Mukherjee said prolonged loose monetary policies and volatile capital flows to emerging market economies are affecting exchange rates much more than trade fundamentals. Therefore,macro-prudential policy options to manage such flows need to be further deliberated and brought into the G 20 cooperative policy framework, he said.

Referring to rising protectionism across the globe,the minister said there is an increase in opaque protectionism and this is more onerous as it is insidious and takes myriad forms. We all must resist this,heeding the lessons from the Great Depression. Mukherjee also drew attention towards growing unilateralism and heightened risk of this cooperation falling apart. He said though the world economies launched a systematic cooperation in the first stage of crisis in 2008,there has been a decline in commitment to cooperate in the long run.

The minister warned against such a behaviour as our policies not only affect us,but also the entire globe. We should all aim for credible results in the second phase of our mutual assessment process. He emphasised systemically important economies must do more.