China-G20 - US warns against devaluation ahead of G20 finance meeting

US Treasury Secretary Jacob Lew on Thursday said top economies should refrain from competitive currency devaluations -- a message likely directed at China, which hosts a G20 finance ministers meeting this weekend.

"The global outlook... underscores our focus on the commitment made at the last G20 in Shanghai to consult closely with one another on exchange rate policy, and to refrain from competitive devaluation," Lew said during a visit to Athens.

Finance ministers and central bank chiefs from the so-called Group of 20, which brings together the biggest industrialised and emerging economies, are scheduled to meet in China on Saturday and Sunday.

"We have seen progress in this regard since the last G20 meeting, and we will continue to encourage the use of the full range of policy tools to promote shared, sustainable growth," he said.

Beijing rattled global investors with a surprise devaluation last August, when it guided the normally stable yuan down nearly five percent over a week, in a move largely perceived by analysts as an attempt to boost exports as economic growth slowed.

The talks this weekend will also likely be dominated by Britain's shock decision to leave the European Union in a referendum last month.

On Greece, which is hoping to exit recession this year after a seventh year of austerity cuts, Lew noted that investors were unlikely to return without "long-term clarity" on the prospects for the recovery of the Greek economy.

A failure to confront the subject of debt relief for Greece has clouded the perspectives for its economic recovery.

"The challenge is to get the trajectory onto a path where...it's clear that Greece can sustain its debt. To the investor world, the notion that it's okay now but it may not be okay in the future is not a good signal," the US secretary said.

Among the organisations managing Greece's recovery, the International Monetary Fund has said it won't give a penny to Greece's latest bailout -- the third since 2010 -- until it sees a concrete plan from the Europeans to substantially cut the country's massive debt burden.

Read more: Flash - US warns against devaluation ahead of G20 finance meeting - France 24

British Economy: Devaluation is a dangerous game. But Britain may have to try it - by William Keegan

Ever since his first written evidence to the Treasury committee, the governor of the Bank of England, Mark Carney, has hinted that he understands the UK’s real deficit problem. This is not the budget deficit, of which chancellor Osborne has made such a fetish, but the balance of payments deficit.

Indeed, that distinguished former permanent secretary to the Treasury and cabinet secretary, Lord Turnbull, recently pointed out that debt owed to citizens of this country is not a problem – and that by not borrowing more for infrastructure at such low rates, Osborne is actually impoverishing future generations. He is, said Turnbull, “playing a dirty game”.

On the real deficit problem, it is obvious from his various pronouncements that Carney can, for a central bank governor, be quite relaxed about a fall – let us call it an “adjustment” – in the foreign exchange value of the currency if it is necessary to restore, or at least prevent a further deterioration, in Britain’s competitiveness in international trade.

Thus it emerged last week that the governor had written to Andrew Tyrie, the chairman of the Treasury committee, explaining that a 10% fall in the pound would boost economic growth by reducing the price of exports (or making exports more profitable) and encouraging companies and private individuals to buy more domestically manufactured goods.

And the impact on inflation – which is already well below the official target – would hardly be sensational.

But he distinguished between the effects of such a depreciation arising “for no underlying reason” and a run on sterling that might result from a vote to leave the European Union – commonly known as “Brexit”.

He explained: “If increased uncertainty were a key underlying cause of this depreciation, aggregate demand might be affected.” Firms might postpone investment projects and households defer spending.

Well, to judge from recent figures for gross domestic product in general and retail sales in particular, the economy may already be affected by concerns about the outcome of the referendum.

These are deep waters, because our sensationally bad balance of payments position suggests that a major devaluation of the pound is needed anyway. I do not know whether Carney has read my good friend Sir Douglas Wass’s magisterial work on the 1976 sterling crisis,

Decline to Fall, but I assume he worries that a necessary devaluation could get completely out of hand – as happened in 1976, when the balance of payments position was not nearly as bad as it is now, although inflation certainly was.



Read more: Devaluation is a dangerous game. But Britain may have to try it | Business | The Guardian