OTTAWA (Reuters) - Countries that impose capital controls and accumulate reserves are delaying the adjustments needed to help the global economy grow fully, Bank of Canada Deputy Governor John Murray said on Tuesday, adding that he did not want to blame anyone country.
“There is a sense that, as indicated by the reserves that have been accumulated and the capital controls, there certainly has been resistance on certain fronts,” Murray said in a presentation in Washington that was webcast.
He continued: “And again, I don’t mean to point the finger just at China - but there is a form of inhibition, something that’s at play, if not subverting, certainly inhibiting, delaying the adjustment process, not facilitating as it might this needed rotation of demand globally that could certainly put us all on a growth path.”
Murray’s pointed remarks were based on previously published research by the Bank of Canada on the consequences of countries’ delaying policies needed to get the global economy back on track, or of only partially carrying them out.
A key element of a successful global growth strategy is for countries like China and others to allow their currencies to move more freely, the central bank has said.
At the same time, it said some industrialized countries need to tighten their budgets, allow banks and households to lower their debts and carry out other growth-boosting reforms.
The Bank of Canada’s models show an uncoordinated approach could result in the loss in global gross domestic product of $16 trillion from 2012 to 2016.
Murray said the world is not necessarily heading for the worst-case scenario and has made progress on implementing the agreed policies across the Group of 20 major developed and developing nations.
But he pinpointed foreign exchange policies as the biggest hindrance.
“It’s not a case of one country, if you take the longer view, doing a favor to others, because the game we were on, the track we were on has just not been sustainable,” he said.
Small, open economies with flexible currencies feel the pressure from other economies that break the global rules to intervene in foreign exchange markets, he said in a reference to Canada’s currency appreciation of recent years.
“Pressures from those who break the rules are displaced onto more flexible currencies,” the presentation said.
One slide showed a chart showing the real effective exchange rates of China, Brazil and Canada.
Editing by James Dalgleish