BRUSSELS — The Group of Seven leading industrial nations, which includes the United States, Japan and Germany, warned Tuesday that volatile movements in exchange rates could adversely hit the global economy.
There have been increasing concerns around the world that countries might manipulate their exchange rates through their domestic economic policies in order to gain an edge. A lower foreign exchange rate can make a country's exports cheaper, thereby boosting growth. But one currency can fall only if another rises – which in turn will create trade problems for other countries.
This process could spark a currency war – a destabilizing battle in which countries compete against one another to get the lowest exchange rate.
In a statement published Tuesday on the Bank of England website, the G-7 finance ministers and central bankers insisted they remained committed to exchange rates driven by the market – not government or central bank policies – and would consult closely when it comes to sharp movements in foreign currency markets.
We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability, said the G-7, which also counts Canada, France, Italy and current president, the United Kingdom, among its members.
The statement comes ahead of a meeting in Moscow this 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 in the Russian capital.