♠ Posted by Emmanuel
at 9/05/2015 04:12:00 PM
The G-20 countries are meeting amid no small amount of turmoil in global financial markets generally attributed to two causes: First, the United States looks set to increase policy interest rates for the first time since--wow, has it really been that long--2006. With the American economy not quite robust but doing better than most developed economies nonetheless, the first 0.25% hike may come as early as this month. Next, China has the opposite situation. Its economy is slowing despite having buoyed its stock markets to questionable effect since the start of the year. Put both together--uncertainty about whether the world's largest economy will increase rates and uncertainty about the real economic situation of China--and markets have not done too well as of late.
At the G-20 so far, we have the expected fireworks. Japan is bashing China over the bursting of a (Communist Party-inflated) bubble:
Zhou Xiaochuan, governor of China’s central bank, couldn’t stop repeating to a G-20 gathering that a bubble in his country had “burst.” It came up about three times in his explanation Friday of what is going on with China’s stock market, according to a Japanese finance ministry official. When asked by a reporter if Zhou was talking about a bubble, Japanese Finance Minister Taro Aso was unequivocal: “What else bursts?”You also had the US warning China about rash moves towards depreciation to shore up exports:
A dissection of the slowdown of the world’s second-largest economy and talk about the equity rout which erased $5 trillion of value was a focal point at the meeting of global policy makers in Ankara. That wasn’t enough for Aso, who said that the discussions hadn’t been constructive.
There is a shared belief among the members of the Group of 20 leading economies in the need to "double down" against competitive currency devaluation and avoid it in both policy and language, a senior U.S. Treasury official said on Saturday.After taking a lot of heat from Japan and the US, China together with other developing economies want some additional clarity on when the Fed will hike as capital outflows and weaker currencies affect them in expectation of Fed action:
Speaking to reporters on the sidelines of the G20 meeting of central bankers and finance ministers in the Turkish capital Ankara, the official said the final communique from the meeting was expected to address competitive devaluation, where countries attempt to drive down a currency to boost exports.
"You can make policy decisions that lead to competitive devaluation, (or) you can say things that lead to talking down a currency," the official said. "There is a shared sense that the G20 needs to double down on its principle that competitive devaluation is a bad thing."
World financial leaders will agree to calibrate and communicate monetary policy carefully to avoid triggering capital flight, but will not call an expected U.S. rate rise a risk to growth, a draft communique showed on Friday.So the G-20 will have something in the communique for everyone. China is not singled out for its intervention, while the US is not labeled a producer of instability with its impending rate hike. Still, if a little more transparency from China and the US is forthcoming, I believe it can contribute towards assuaging fears investors have this year.
Many emerging market economies are concerned that when the U.S. Federal Reserve raises borrowing costs, investors will withdraw from other markets and buy dollar assets, weakening other currencies and creating turbulence as capital flees.
Officials from emerging markets wanted the communique from finance ministers and central bank governors of the Group of 20 biggest economies, meeting in Turkey, to say that a U.S. rate rise now would be a risk to growth. But the draft avoids such wording.
